The reconciliation between the Federal Statutory Rate and the effective income tax rate for the ninesix months ended SeptemberJune 30, 20172023 and 20162022 is as follows:
| |
(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 Companycompany 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$1.7 million is recognized in the consolidated balance sheet as a component of other non-current liabilities at SeptemberJune 30, 2017.2023. Net periodic benefit cost consists of the following for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Service cost | $ | 91 | | | $ | 107 | | | $ | 181 | | | $ | 217 | |
Interest cost | 62 | | | 10 | | | 122 | | | 21 | |
Expected return on plan assets | (55) | | | (18) | | | (109) | | | (37) | |
Amortization of unrecognized loss | (9) | | | (7) | | | (18) | | | (14) | |
Effect of curtailment | — | | | (28) | | | (13) | | | (31) | |
Net periodic benefit cost | $ | 89 | | | $ | 64 | | | $ | 163 | | | $ | 156 | |
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | 134 |
| | $ | 111 |
| | $ | 401 |
| | $ | 325 |
|
Interest cost | 24 |
| | 35 |
| | 71 |
| | 103 |
|
Expected return on plan assets | (39 | ) | | (40 | ) | | (117 | ) | | (117 | ) |
Amortization of unrecognized loss | 63 |
| | 45 |
| | 188 |
| | 132 |
|
Net periodic benefit cost | $ | 182 |
| | $ | 151 |
| | $ | 543 |
| | $ | 443 |
|
During the three and ninesix months ended SeptemberJune 30, 2017,2023, per the terms of the pension agreement, Arnold contributed $0.1 million and $0.3$0.2 million to the plan utilizing reserves from prior years over funding of the plan, respectively.plan. For the remainder of 2017,2023, the expected contribution to the plan will be approximately $0.1$0.2 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 SeptemberJune 30, 20172023 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 office and manufacturing facilities, computer equipment and software under various 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 was not a material component of our total lease expense for the three and six months ended June 30, 2023 and 2022. The Company recognized $13.6 million and $25.9 million in the three and six months ended June 30, 2023 and $10.6 million and $21.0 million in the three and six months ended June 30, 2022, respectively, in expense related to operating leases in the condensed consolidated statements of operations.
The maturities of lease liabilities at June 30, 2023 are as follows (in thousands):
| | | | | | | | |
2023 (excluding six months ended June 30, 2023) | | $ | 19,337 | |
2024 | | 40,287 | |
2025 | | 36,936 | |
2026 | | 33,561 | |
2027 | | 29,124 | |
Thereafter | | 73,014 | |
Total undiscounted lease payments | | $ | 232,259 | |
Less: Interest | | 53,113 | |
Present value of lease liabilities | | $ | 179,146 | |
The calculated amount of the right-of-use assets and lease liabilities 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. As the discount 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:
| | | | | | | | | | | | | | |
Lease Term and Discount Rate | | June 30, 2023 | | June 30, 2022 |
Weighted-average remaining lease term (years) | | 6.31 | | 5.98 |
Weighted-average discount rate | | 7.89 | % | | 7.18 | % |
Supplemental balance sheet information related to leases was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Line Item in the Company’s Consolidated Balance Sheet | | June 30, 2023 | | December 31, 2022 |
| | | | | | |
Operating lease right-of-use assets | | Other non-current assets | | $ | 156,918 | | | $ | 147,518 | |
Current portion, operating lease liabilities | | Other current liabilities | | $ | 29,441 | | | $ | 28,497 | |
Operating lease liabilities | | Other non-current liabilities | | $ | 149,705 | | | $ | 139,529 | |
Supplemental cash flow information related to leases was as follows (in thousands):
| | | | | | | | | | | | | | |
| | Six months ended June 30, 2023 | | Six months ended June 30, 2022 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases | | $ | 21,297 | | | $ | 13,929 | |
Right-of-use assets obtained in exchange for lease obligations: | | | | |
Operating leases | | $ | 22,994 | | | $ | 19,947 | |
Note RP — Related Party Transactions
Management Services Agreement
The LLC entered into the Management Services Agreement ("MSA") with CGM effective May 16, 2006, as amended. Our Chief Executive Officer is a partner of CGM. The MSA provides for, among other things, CGM to perform services for the LLC in exchange for a management fee paid quarterly and equal to 0.5% of the LLC's adjusted net assets, as defined in the MSA.
During 2022, CGM entered into a waiver of the MSA for the period through June 30, 2023 to receive a 1% annual management fee related to PrimaLoft, rather than the 2% called for under the MSA, which resulted in a lower management fee at March 31, and June 30, 2023 than would normally have been due. At March 31, 2022, CGM entered into a waiver to exclude cash balances held at the LLC from the calculation of the management fee.
Integration Services Agreements
PrimaLoft, which was acquired in July 2022, entered into an Integration Services Agreement ("ISA") with CGM whereby PrimaLoft paid CGM an integration services fee of $4.8 million quarterly over the twelve-month period ended June 30, 2023.
Lugano, which was acquired in September 2021, entered into an ISA with CGM whereby Lugano paid CGM an integration services fee of $2.3 million quarterly over a twelve month period as services were rendered, beginning in the quarter ended December 31, 2021.
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. Under the ISAs, CGM provides 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 other subsidiaries.
The Company and its businesses have the following significant related party transactions
5.11
Related Party Vendor Purchases - Subsequent Event5.11 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 $0.4 million and $1.0 million during the three and six months endedJune 30, 2023, respectively and $0.5 million and $0.8 million during the three and six months ended June 30, 2022, respectively in inventory from the vendor.
BOA
Related Party Vendor Purchases - A contract manufacturer used by BOA as the primary supplier of molded injection parts is a noncontrolling shareholder of BOA. BOA purchased approximately $10.7 million and $20.4 million from this supplier during the three and six months ended June 30, 2023, respectively and $15.9 million and $31.1 million during the three and six months ended and June 30, 2022, respectively.
Ergobaby
Recapitalization - In October 2017,February 2022, the Company further amendedcompleted a recapitalization of Ergobaby whereby 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”). PursuantLLC entered into an amendment to the First Refinancing Amendment, outstanding Term Loans at LIBOR Rate bear interest at LIBOR plus an applicable rateintercompany loan agreement with Ergobaby (the "Ergo Loan Agreement"). The Ergo Loan Agreement was amended to provide for additional loan borrowings of 2.25% and outstanding Term Loans at Base Rate bear interest at Base Rate plus 1.25%. Prior$61.5 million to the amendment,fund a distribution to shareholders. The LLC owned 81.6% of the outstanding Term Loans bore interest at LIBOR plus 2.75% or Base Rate plus 1.75%. In connection withshares of Ergobaby on the First Refinancing Amendment,date of the Company incurred $1.4 milliondistribution and received $50.2 million. The remaining amount of debt issuance costs associated with fees charged by term loan lenders.the distribution was paid to minority shareholders.
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, 20162022 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""LLC"), was also formed on November 18, 2005. The TrustHoldings and the CompanyLLC (collectively, "CODI"the "Company") were formed to acquire and manage a group of small and middle-market businesses headquartered in North America. The TrustLLC is the solea controlling owner of 100% of the Trust Interests,ten businesses, or operating segments, at June 30, 2023. The segments are as defined in ourfollows: 5.11 Acquisition Corp. ("5.11"), Boa Holdings Inc. ("BOA"), The Ergo Baby Carrier, Inc. ("Ergobaby"), Lugano Holdings, Inc. ("Lugano Diamonds" or "Lugano"), Marucci Sports, LLC Agreement, of the Company. Pursuant to the("Marucci" or "Marucci Sports"), PrimaLoft Technologies Holdings, Inc. ("PrimaLoft"), Velocity Outdoor, Inc. ("Velocity Outdoor" or "Velocity"), FFI Compass, Inc. ("Altor Solutions" or "Altor" (formerly "Foam Fabricators")), AMT Acquisition Corporation ("Arnold"), and The Sterno Group, LLC Agreement, the Trust owns an identical number of Trust Interests in the Company as exist for the number of outstanding shares of the Trust. Accordingly, our shareholders are treated as beneficial owners of Trust Interests in the Company and, as such, are subject to tax under partnership income tax provisions. The Company is the operating entity with a board of directors whose corporate governance responsibilities are similar to that of a Delaware corporation. The Company’s board of directors oversees the management of the Company and our businesses and the performance of Compass Group Management LLC ("CGM" or our "Manager"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 SeptemberJune 30, 20172023 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 - June 30, 2023 |
Business | | Acquisition Date | | Primary | | Diluted |
Ergobaby | | September 16, 2010 | | 81.6% | | 72.8% |
Arnold | | March 5, 2012 | | 98.0% | | 85.5% |
Sterno | | October 10, 2014 | | 99.4% | | 90.7% |
5.11 | | August 31, 2016 | | 97.5% | | 88.3% |
Velocity Outdoor | | June 2, 2017 | | 99.4% | | 87.7% |
Altor Solutions | | February 15, 2018 | | 99.8% | | 87.9% |
Marucci Sports | | April 20, 2020 | | 90.0% | | 80.9% |
BOA | | October 16, 2020 | | 91.8% | | 83.3% |
Lugano | | September 3, 2021 | | 59.9% | | 54.9% |
PrimaLoft | | July 12, 2022 | | 90.7% | | 82.0% |
We categorize theour subsidiary 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. We recently announced the launch of our healthcare effort as our third grouping of companies. We believe healthcare has multiple attractive, high-growth segments with strong industry tailwinds, is an acyclical vertical that we expect will bring diversification and stability to the current group of companies, and has strong alignment with the Company’s existing subsidiary priorities.
Trust Preferred Share IssuanceThe following is an overview of each of our subsidiary businesses:
On June 28, 2017,Branded Consumer
5.11 - 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, footwear and gear designed to enhance the Trust issued 4,000,000 7.250% Series A Trust Preferred Shares (the "Series A Preferred Shares") for gross proceedssafety, accuracy, speed and performance of $100.0 million, or $96.4 million net of underwriters' discounttactical professionals and issuance costs.enthusiasts worldwide. Headquartered in Costa Mesa, 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.
Acquisition of Crosman
On June 2, 2017, through a wholly owned subsidiary, Crosman Acquisition Corp., we acquired 98.9%BOA - BOA creator of the outstanding equityrevolutionary, award-winning, patented BOA Fit System, partners with market-leading brands to make the best gear even better. Delivering fit solutions purpose-built for performance, the BOA Fit System is featured in footwear across snow sports, cycling, outdoor, athletic, workwear as well as performance headwear and medical bracing. The system consists of Bullseye Acquisition Corporation, whichthree integral parts: a micro-adjustable dial, high-tensile lightweight laces, and low friction lace guides creating a superior alternative to laces, buckles, Velcro, and other traditional closure mechanisms. Each unique BOA configuration is designed with brand partners to deliver superior fit and performance for athletes, is engineered to perform in the sole ownertoughest conditions and is backed by The BOA Lifetime Guarantee. BOA is headquartered in Denver, Colorado and has offices in Austria, Greater China, South Korea, and Japan.
Ergobaby - Headquartered in Torrance, California, Ergobaby is dedicated to building a global community of Crosman Corp. ("Crosman"). Crosmanconfident parents with smart, ergonomic solutions that enable and encourage bonding between parents and babies. Ergobaby offers a broad range of award-winning baby carriers, strollers, bouncers, swaddlers, nursing pillows, and related products that fit into families’ daily lives seamlessly, comfortably and safely.
Lugano - Lugano is a leading designer, manufacturer and marketer of high-end, one-of-a-kind jewelry sought after by some of the world’s most discerning clientele. Lugano conducts sales via its own retail salons as well as pop-up showrooms at Lugano-hosted or sponsored events in partnership with influential organizations in the equestrian, art and philanthropic community. Lugano is headquartered in Newport Beach, California.
Marucci Sports - Marucci is a leading designer, manufacturer, and marketer of premium wood and metal baseball bats, composite 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 corporate-owned and franchised sports training facilities. Marucci is headquartered in Baton Rouge, Louisiana.
PrimaLoft - PrimaLoft is a leading provider of branded, high-performance synthetic insulation and materials used primarily in consumer outerwear, and accessories. The portfolio of PrimaLoft synthetic insulations offers products that can both mimic natural down aesthetics and provide the freedom to design garments ranging from stylish puffers to lightweight performance apparel. PrimaLoft insulations also offer superior economics to the brand partner and enable better sustainability characteristics through the use of recycled, low-carbon inputs. PrimaLoft is headquartered in Latham, New York.
Velocity Outdoor - A leading designer, manufacturer, and marketer of airguns, archery products, laser aiming devices, hunting apparel and related accessories. Headquarteredaccessories, Velocity offers its products under the highly recognizable Crosman, Benjamin, LaserMax, Ravin, CenterPoint and King's Camo 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 and Ravin crossbows, consumables, which includes steel and plastic BBs, lead pellets and CO2 cartridges, lasers for firearms, and airsoft products. The apparel category offers high-performance, feature rich hunting and casual apparel of uncompromised quality utilizing King’s own proprietary camo patterns. Velocity Outdoor is headquartered in Bloomfield, New York, CrosmanYork.
Niche Industrial
Altor Solutions - Altor Solutions 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). Altor operates 18 molding and fabricating facilities across North America and provides products to a variety of end-markets, including appliances and electronics, pharmaceuticals, health and wellness, automotive, building products and others. Altor Solutions is headquartered in Scottsdale, Arizona.
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 its products, technologies, and manufacturing presence to meet the demands of current and emerging markets. Arnold produces high performance permanent magnets (PMAG), turnkey electric motors ("Ramco"), 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 its 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.
Sterno - Sterno, headquartered in Plano, Texas, is the parent company of Sterno Products, LLC ("Sterno Products") and Rimports, LLC ("Rimports"). Sterno is a leading manufacturer and marketer of portable food warming fuels for the hospitality and consumer markets, flameless candles and house and garden lighting for the home decor market, and wickless candle products used for home decor and fragrance systems.
While our subsidiary businesses have different growth opportunities and potential rates of growth, we actively manage each of our subsidiary businesses to increase the value of, and cash generated by, each business through various initiatives, including mass merchants, sporting goods retailers, online channelsmaking selective capital investments to expand geographic reach, increase capacity or reduce manufacturing costs of our subsidiary businesses; improving and distributors serving smaller specialty storesexpanding existing sales and marketing programs; and assisting in the acquisition and integration of complementary businesses.
Significant Trends Impacting Our Subsidiary Businesses
Macroeconomic Trends
The macroeconomic environment continues to remain dynamic as global macroeconomic trends, including inflationary pressures and rising interest rates, are weakening consumer sentiment and negatively impacting consumer spending behavior. We expect changing market conditions and continued inflationary pressures to impact consumer spending, particularly for discretionary items purchased by low and middle income consumers. We continue to experience modest inflationary cost increases in our materials, labor and transportation costs, although transportation costs have normalized after reaching a peak in the first half of 2022. We took numerous actions during 2022 to build capacity as well as increase our supply chain related resources, including increasing inventory levels and investing in automated systems to increase production efficiency. We have begun seeing our lead-times for inventory begin to stabilize, which we expect will allow for more accurate forecasting in the second half of 2023. We are experiencing continued uncertainty in our business and the global economy due to inflation, changes in consumer spending patterns, and global supply chain disruptions. Accordingly, our liquidity and financial results could be impacted in ways that we are not able to predict today.
Business Outlook
The Company anticipates that the areas of focus for the second half of 2023, which are generally applicable to each of our businesses, include:
•Pursuing sales growth through a combination of new product development, increasing distribution, new customer acquisitions and international markets. Its diversified product portfolio includesexpansion;
•Raising prices, when appropriate, on our goods due to rising input costs to preserve operating margins;
•Taking market share, where possible, in each of our niche market leading companies, generally at the widely known Crosman, Benjaminexpense of less well capitalized competitors;
•Striving for excellence in supply chain management, manufacturing and CenterPoint brands.technological capabilities;
•Continuing to pursue expense reduction and cost savings in lower margin business lines or in response to lower production volume;
•Continuing to grow through disciplined, strategic acquisitions and rigorous integration processes; and
•Driving free cash flow through increased net income and effective working capital management, enabling continued investment in our businesses.
Recent Events
Sale of Advanced Circuits
On January 10, 2023, the LLC, solely in its capacity as the representative of the holders of stock and options of Compass AC Holdings, Inc. (“Advanced Circuits”), a majority owned subsidiary of the LLC, entered into a definitive Agreement and Plan of Merger with APCT Inc. (“ACI Purchaser”), Circuit Merger Sub, Inc. (“ACI Merger Sub”) and Advanced Circuits, pursuant to which ACI Purchaser agreed to acquire all of the issued and outstanding securities of Advanced Circuits, the parent company of the operating entity, Advanced Circuits, Inc., through a merger of ACI Merger Sub with and into Advanced Circuits, with Advanced Circuits surviving the merger and becoming a wholly owned subsidiary of ACI Purchaser (the “ACI Merger”). The purchaseACI Merger was completed on February 14, 2023. The sale price includingof Advanced Circuits was based on an enterprise value of $220 million, subject to certain adjustments based on matters such as the working capital and cash and debt balances of Advanced Circuits at the time of the closing. After the allocation of the sales price to Advanced Circuits non-controlling equity holders and the payment of transaction expenses, the Company received approximately $170.9 million of total proceeds from noncontrolling interests andat closing of which $66.9 million related to the repayment of intercompany loans with the Company. We recorded a gain on sale of $98.0 million, net of transaction costs, was approximately $150.4 million. Crosman management investedan income tax provision of $6.8 million related to the sale of Advanced Circuits in the transaction along with the Company, representing approximately 1.1%first quarter of the initial noncontrolling interest.
Divestiture of FOX shares
On March 13, 2017, Fox Factory Holding Corp. ("FOX") closed2023. We recorded additional gain 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 portion of our FOX shares$2.1 million in March 2017 qualified as a Sale Event under the Company's LLC Agreement. During the second quarter of 2017, our board of directors declared a distribution2023 related to the Holdersworking capital settlement, and adjusted the income tax provision to $4.6 million, reflecting the loss at the LLC during the first half 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. We remain focused on marketing the Company’s attractive ownership and management attributes to potential sellers of middle market businesses and intermediaries. 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.
Discontinued Operations
The results of operations for Tridien for the three and nine months ended September 30, 2016 are presented as discontinued operations in our consolidated financial statements as a result of the sale of Tridien in September 2016. Refer to Note D - "Discontinued Operations", of the condensed consolidated financial statements for further discussion of the operating results of our discontinued businesses.
year.
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
See “Reconciliation of Non-GAAP Financial Measures” for further discussion of our non-GAAP financial measures 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.related reconciliations.
Results of Operations
The following discussion reflects a comparison of the historical results of operations of our consolidated business for the three and six months ended June 30, 2023 and June 30, 2022, and components of the results of operations as well as those components presented as a percent of net revenues, for each of our subsidiary businesses on a stand-alone basis.
In the following results of operations, we provide (i) our actual consolidated resultsConsolidated Results of operationsOperations for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, which includes the historical results of operations of each of our businesses (operating segments) from the date of acquisition in accordance with generally accepted accounting principles in the United States ("GAAP" or "US GAAP), and (ii) comparative historical components of the results of operations for each of our businesses on a stand-alone basis for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, where all periods presented include relevant proformapro forma adjustments for pre-acquisition periods and explanations where applicable. For the acquisition of PrimaLoft in July 2022, the pro forma results of operations for the PrimaLoft business segment has been prepared as if we purchased this business on January 1, 2022. We believe this is the most meaningful comparison for the operating results of acquired 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.
Consolidated 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."
Results of Operations – Compass Diversified Holdings- Consolidated
The following table sets forth our unaudited results of operations for the three and Compass Group Diversified Holdings LLCsix months ended June 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Six months ended |
(in thousands) | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
Net revenues | $ | 524,159 | | | $ | 515,597 | | | $ | 1,066,387 | | | $ | 1,026,110 | |
Cost of revenues | 287,269 | | | 303,840 | | | 591,666 | | | 613,538 | |
Gross profit | 236,890 | | | 211,757 | | | 474,721 | | | 412,572 | |
Selling, general and administrative expense | 148,218 | | | 125,624 | | | 294,383 | | | 246,296 | |
Fees to manager | 16,920 | | | 14,901 | | | 33,315 | | | 29,337 | |
Amortization of intangibles | 26,677 | | | 20,921 | | | 53,051 | | | 42,026 | |
Operating income | 45,075 | | | 50,311 | | | 93,972 | | | 94,913 | |
Interest expense | (26,615) | | | (17,519) | | | (52,795) | | | (34,938) | |
Amortization of debt issuance costs | (1,024) | | | (865) | | | (2,029) | | | (1,731) | |
| | | | | | | |
Other income (expense) | (101) | | | 737 | | | 1,026 | | | 2,773 | |
Income from continuing operations before income taxes | 17,335 | | | 32,664 | | | 40,174 | | | 61,017 | |
Provision for income taxes | 4,444 | | | 6,132 | | | 14,280 | | | 16,108 | |
Net income from continuing operations | $ | 12,891 | | | $ | 26,532 | | | $ | 25,894 | | | $ | 44,909 | |
|
| | | | | | | | | | | | | | | |
| 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 sales | 206,232 |
| | 169,870 |
| | 599,552 |
| | 436,544 |
|
Gross profit | 117,725 |
| | 82,415 |
| | 321,778 |
| | 223,204 |
|
Selling, general and administrative expense | 80,804 |
| | 53,648 |
| | 239,102 |
| | 140,702 |
|
Fees to manager | 8,277 |
| | 8,435 |
| | 24,308 |
| | 21,394 |
|
Amortization of intangibles | 14,167 |
| | 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 SeptemberJune 30, 20172023 compared to three months ended SeptemberJune 30, 20162022
Net salesrevenues
On a consolidated basis,Consolidated net salesrevenues for the three months ended SeptemberJune 30, 20172023 increased by approximately $71.7$8.6 million, or 28.4%1.7%, compared to the corresponding period in 2016.2022. Our acquisition of 5.11 Tactical on August 31, 2016PrimaLoft business, which we acquired in July 2022, contributed $44.8$22.2 million to the increase in net sales, while our acquisition of Crosman on June 2, 2017 contributed $34.4 million.increase. During the three months ended SeptemberJune 30, 20172023 compared to 2016,2022, we also saw a notableincreases in net sales increase at Clean Earth5.11 ($4.26.0 million primarily due to two acquisitions in 2016increase), Marucci ($9.6 million increase), Lugano ($21.9 million increase), and one acquisition in 2017)Arnold ($1.4 million increase), partially offset by a decrease in salesnet revenue at our LibertyBOA ($5.421.3 million decrease), ErgobabyVelocity Outdoor ($1.816.0 million decrease), Manitoba HarvestAltor Solutions ($2.05.3 million decrease) and Sterno ($2.99.6 million decrease) subsidiaries.. Refer to "Results of Operations - Our Businesses"Business Segments" for a more detailed analysis of net salesrevenues by subsidiary business segment.
We do not generate any revenues apart from those generated by the businesses we own.our subsidiaries. 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 ofWe make loans from the Company to suchour subsidiary businesses as well asand also hold equity interests in those companies.businesses. Cash flows coming to the Trust and the Company are the result of interest payments on those loans, amortization of those loans and dividendsadditional principal payments on our equity ownership.those loans. However, on a consolidated basis, these items will be eliminated.
Cost of salesrevenues
On a consolidated basis, cost of sales increasedrevenues decreased approximately $36.4$16.6 million during the three month periodmonths ended SeptemberJune 30, 2017,2023 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 of the increase due to acquisitions in the prior and current year. These increases were offset by2022. We saw notable decreases in cost of salesrevenues at other operating segments, particularly ErgobabyBOA ($4.8 million)7.7 million decrease), LibertyVelocity ($4.7 million)11.0 million decrease), Altor ($11.0 million decrease), and ArnoldSterno ($1.4 million).9.0 million decrease) that corresponded to the decrease in revenue noted above. These decreases were offset by increases in cost of revenue at several of our businesses. Our PrimaLoft business contributed $8.2 million in cost of revenues for the quarter ended June 30, 2022. We also saw increases in cost of revenues at 5.11 ($3.2 million increase), Lugano ($7.8 million increase) and Marucci ($2.0 million increase) that correspond to the revenue increases noted above. Gross profit as a percentage of salesnet revenues was approximately 36.3%45.2% in the three months ended SeptemberJune 30, 20172023 compared to 32.7%41.1% in the three months ended SeptemberJune 30, 2016. 2022. The increase in gross profit as a percentage of net sales in the quarter ended June 30, 2023 as compared to the quarter ended June 30, 2022 is primarily attributable to the implementation of price increases at most of our subsidiary businesses in response to rising costs, and the mix of products with the increase in net revenue at our higher margin businesses. Refer to "Results of Operations - Our Businesses"Business Segments" for a more detailed analysis of cost of salesgross profit by subsidiary business segment.
Selling, general and administrative expense
On a consolidated basis,Consolidated selling, general and administrative expense increased approximately $27.2$22.6 million during the three month periodmonths ended SeptemberJune 30, 2017,2023, compared to the corresponding period in 2016. The2022. A portion of the increase in selling general and administrative expense in the 2017second quarter comparedof 2023 is due to 2016 is principally the resultour PrimaLoft acquisition in July 2022 ($5.7 million of the increase, of which $1.2 million was attributable to integration services fees). We also saw increases in selling, general and administrative expenses at several of our consumer brands due to increased investment in marketing and headcount, particularly 5.11 Tactical acquisition in August 2016 ($23.6 million)4.5 million of the increase), Lugano ($6.6 million of the increase) and Crosman in June 2017Marucci ($5.1 million, including $0.3 million in transaction costs incurred for acquisition costs during the quarter)2.8 million). Refer to "Results of Operations - Our Businesses"Business Segments" for a more detailed analysis of selling, general and administrative expense by subsidiary business segment. At the corporate level, general and administrative expense was $2.8$4.1 million in the thirdsecond quarter of 20172023 and $2.7$3.4 million in the thirdsecond quarter of 2016.
2022, an increase of $0.7 million primarily due to an increase in professional fees.
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 SeptemberJune 30, 2017,2023, we incurred approximately $8.3$16.9 million in management fees as compared to $8.4$14.9 million in fees in the three months ended SeptemberJune 30, 2016.2022. The increase in management fees is primarily attributable to our acquisition of PrimaLoft in July 2022. CGM entered into a waiver of the MSA for a period through June 30, 2023 to receive a 1% annual management fee related to PrimaLoft, rather than the 2% called for under the MSA, which resulted in a lower management fee paid in the second quarter of 2023 than would have normally been due.
Amortization expense
Amortization expense for the three months ended SeptemberJune 30, 20172023 increased $5.7$5.8 million as compared to the three months ended SeptemberJune 30, 2016 primarily2022 as a result of the acquisitionsamortization expense associated with the intangibles that were recognized in conjunction with the purchase price allocation for PrimaLoft, which was acquired in July 2022.
Interest expense
We recorded interest expense totaling $26.6 million for the three months ended June 30, 2023 compared to $17.5 million for the comparable period in 2022, an increase of 5.11$9.1 million. The increase in August 2016interest expense in the current quarter reflects higher amounts outstanding on our revolving credit facility in the current year, the interest expense associated with our 2022 Term Loan that we entered into in July 2022 in connection with our acquisition of PrimaLoft, and Crosmanthe higher interest rate environment in the current quarter versus the comparable quarter in the prior year.
Other income (expense)
For the quarter ended June 2017.30, 2023, we recorded $0.1 million in other expense as compared to $0.7 million in other income in the quarter ended June 30, 2022, a decrease in other expense of $0.8 million. Other income (expense) typically reflects the movement in foreign currency at our subsidiary businesses with international operations, gains or (losses) realized on the sale of property, plant and equipment, and expenses incurred or income earned that are not considered a part of our operations.
Loss on disposalIncome taxes
We had an income tax provision of assets
Ergobaby recorded a $0.6$4.4 million loss on disposal of assets during the thirdthree months ended June 30, 2023 compared to an income tax provision of $6.1 million during the same period in 2022, a decrease of $1.7 million. Our income before income taxes for the quarter ended June 30, 2023 decreased by approximately $15.3 million as compared to the prior year quarter. During the second quarter of 2016 related2023, we had an effective income tax rate of 35.5% as compared to its decisionan effective income tax rate of 26.4% for the second quarter of 2022. During the second quarter of 2023, the effective income tax rate differed from the U.S. statutory rate of 21.0% primarily due to disposeforeign income taxes and limitations on the use of net operating loss carryforwards and the Orbit Baby product line. Referdeduction of interest expense at our subsidiaries, while in the second quarter of 2022, the difference with the U.S. statutory rate was primarily attributable to the Ergobaby section under "Resultseffect of Operations - Our Businesses" for additional details regarding the loss on disposal.state and local income taxes.
NineSix months endedJune 30, 2023 compared to six months ended SeptemberJune 30, 2017 compared to nine2022
Net revenues
Consolidated net revenues for the six months ended SeptemberJune 30, 2016
Net sales
On a consolidated basis, net sales for the nine months ended September 30, 20172023 increased by approximately $261.6$40.3 million, or 39.6%3.9%, compared to the corresponding period in 2016.2022. Our acquisition of 5.11PrimaLoft business, which we acquired in August 2016July 2022, contributed $201.3 million to the increase in net sales and our acquisition of Crosman in June 2016 contributed $44.2$46.7 million to the increase. During the ninesix months ended SeptemberJune 30, 20172023 compared to 2016,2022, we also saw notablesignificant increases in net sales increases at 5.11 ($26.4 million increase), Marucci ($15.8 million increase), Lugano ($38.8 million increase), Ergobaby ($2.71.9 million primarily due to the acquisition of Baby Tula)increase) and Arnold ($3.3 million increase), Clean Earthpartially offset by a decrease in net revenue at BOA ($19.340.1 million primarily due to two acquisitions in 2016 and one in 2017)decrease), Velocity Outdoor ($33.4 million decrease), Altor Solutions ($7.6 million decrease) and Sterno ($6.411.5 million primarily due to the acquisition 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)decrease). Refer to "Results of Operations - Our Businesses"Business Segments" for a more detailed analysis of net salesrevenues by subsidiary business segment.
We do not generate any revenues apart from those generated by the businesses we own.our subsidiaries. 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 ofWe make loans from the Company to suchour subsidiary businesses as well asand also hold equity interests in those companies.businesses. Cash flows coming to the Trust and the Company are the result of interest payments on those loans, amortization of those loans and dividendsadditional principal payments on our equity ownership.those loans. However, on a consolidated basis, these items will be eliminated.
Cost of salesrevenues
On a consolidated basis, cost of sales increasedrevenues decreased approximately $163.0$21.9 million during the nine month periodsix months ended SeptemberJune 30, 2017,2023 compared to the corresponding period in 2016. 5.11 accounted for $121.42022. We saw notable decreases in cost of revenues at BOA ($13.6 million ofdecrease), Velocity ($23.1 million decrease), Altor ($15.9 million decrease), and Sterno ($12.9 million decrease) that corresponded to the increasedecrease in revenue noted above. Our Marucci business also saw a decrease in cost of sales including $21.7of $1.2 million, despite an increase in expense related to the amortization of the inventory step-up resulting from purchase accounting during the nine months ended September 30, 2017, while our Crosman acquisition accounted for $36.3 million of the increase. Clean Earth accounted for $14.7 million of the increase due to acquisitionsrevenue in the prior and current year, and Sterno accounted for $6.3 millionperiod versus the comparable period in 2022. In the first half of the increase.2022, Marucci had increased air freight costs as they worked to offset supply chain shortages. These increasesdecreases were offset by decreasesincreases in cost of salesrevenue at other operating segments, particularly Libertyseveral of our businesses. Our PrimaLoft business contributed $17.1 million in cost of revenues for the six months ended June 30, 2023. We also saw increases in cost of revenues at 5.11 ($6.0 million)12.9 million increase), and ArnoldLugano ($5.0 million).13.9 million increase) that correspond to the revenue increases noted above. Gross profit as a percentage of salesnet revenues was approximately 34.9%44.5% in the ninesix months ended SeptemberJune 30, 20172023 compared to 33.8%40.2% in the ninesix months ended SeptemberJune 30, 2016. 2022. The increase in gross profit as a percentage of net sales in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 is primarily attributable to the implementation of price increases at most of our subsidiary businesses in response to rising costs, and the mix of products sold, with increases in net revenue at our higher margin businesses. Refer to "Results of Operations - Our Businesses"Business Segments" for a more detailed analysis of cost of salesgross profit by subsidiary business segment.
Selling, general and administrative expense
On a consolidated basis,Consolidated selling, general and administrative expense increased approximately $98.4$48.1 million during the nine month periodsix months ended SeptemberJune 30, 2017,2023, compared to the corresponding period in 2016. The2022. A portion of the increase in selling general and administrative expense in 2017 comparedthe six months ended June 30, 2023 is due to 2016 is principally the resultour PrimaLoft acquisition in July 2022 ($10.8 million of the 5.11 acquisition in August 2016 ($85.3 million), and Crosman in June 2017 ($7.7increase, of which $2.4 million including $1.8 million in acquisition related expenses)was attributable to integration services fees). We also saw an increaseincreases in selling, general and administrative expense for the nine months ended September 30, 2017expenses at Clean Earth ($2.9 millionseveral of our consumer brands due to acquisitionsincreased investment in marketing and headcount, particularly 5.11 ($13.5 million of the currentincrease), Lugano ($11.1 million of the increase) 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.Marucci ($5.5 million). Refer to "Results of Operations - Our Businesses"Business Segments" for a more detailed analysis of selling, general and administrative expense by subsidiary business segment. At the corporate level, general and administrative expense increased from $8.6was $8.9 million in the nine months ended September 30, 2016 to $9.0first half of 2023 and $7.0 million in the nine months ended September 30, 2017.
first half of 2022, an increase of $1.9 million due to the timing of investor relation events and an increase in professional fees.
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 ninesix months ended SeptemberJune 30, 2017,2023, we incurred approximately $24.3$33.3 million in expense for thesemanagement fees as compared to $21.4$29.3 million forin fees in the corresponding period in 2016.six months ended June 30, 2022. The increase in the management fees that occurred is primarily dueattributable to the increase in consolidated net assets resulting from theour acquisition of 5.11PrimaLoft in August 2016, andJuly 2022. CGM entered into a waiver of the acquisitionMSA for a period through June 30, 2023 to receive a 1% annual management fee related to PrimaLoft, rather than the 2% called for under the MSA, which resulted in a lower management fee paid in the first half of Crosman in June 2017.2023 than would have normally been due.
Amortization expense
Amortization expense for the ninesix months ended SeptemberJune 30, 20172023 increased $15.3$11.0 million as compared to the ninesix months ended SeptemberJune 30, 20162022 as a result of the amortization expense associated with the intangibles that were recognized in conjunction with the purchase price allocation for PrimaLoft, which was acquired in July 2022.
Interest expense
We recorded interest expense totaling $52.8 million for the six months ended June 30, 2023 compared to $34.9 million for the comparable period in 2022, an increase of $17.9 million. The increase in interest expense in the current period reflects higher amounts outstanding on our revolving credit facility in the current year, the interest expense associated with our 2022 Term Loan that we entered into in July 2022 in connection with our acquisition of 5.11 in August 2016PrimaLoft, and Crosman in June 2017.
Impairment expense
Arnold performed an interim impairment test at each of its reporting unitsthe higher interest rate environment in the fourth quarter of 2016, which resultedcurrent year versus the comparable period in the recordingprior year.
Other income (expense)
For the six months ended June 30, 2023, we recorded $1.0 million in other income as compared to $2.8 million in other income in the six months ended June 30, 2022, a decrease in other income of preliminary impairment expense$1.7 million. Other income (expense) typically reflects the movement in foreign currency at our subsidiary businesses with international operations, gains or (losses) realized on the sale of the PMAG reporting unitproperty, plant and equipment, and expenses incurred or income earned that are not considered a part of $16.0 million.our operations. In the prior year, we recognized a non-recurring settlement of $1.8 million at Marucci, which contributed to the decrease in the current period.
Income taxes
We had an income tax provision of $14.3 million during the sixmonths ended June 30, 2023 compared to an income tax provision of $16.1 million during the same period in 2022, a decrease of $1.8 million. Our income before income taxes for the six months ended June 30, 2023 decreased by approximately $20.8 million as compared to the prior year six months ended. During the first quarterhalf of 2017, Arnold completed2023, we had an effective income tax rate of 35.5% as compared to an effective income tax rate of 26.4% for the impairment testingfirst half of 2022. During the PMAG reporting unitfirst half of 2023, the effective income tax rate differed from the U.S. statutory rate of 21.0% primarily due to foreign income taxes and recorded an additional $8.9 million impairment expense basedlimitations on the resultsuse of net operating loss carryforwards and interest expense deductions at our subsidiaries, while in the Step 2 impairment testing.
Loss on disposalfirst half of assets
Ergobaby recorded a $7.2 million loss on disposal of assets during 2016 related to its decision to dispose of2022, the Orbitbaby product line. Referdifference with the U.S. statutory rate was primarily attributable to the Ergobaby section under "Resultseffect of Operations - Our Businesses" for additional details regarding the loss on disposal.state and local income taxes.
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 ended | | Six months ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
Net sales | | $ | 126,030 | | | 100.0 | % | | $ | 120,048 | | | 100.0 | % | | $ | 250,482 | | | 100.0 | % | | $ | 224,071 | | | 100.0 | % |
Gross profit | | $ | 67,893 | | | 53.9 | % | | $ | 65,104 | | | 54.2 | % | | $ | 132,836 | | | 53.0 | % | | $ | 119,285 | | | 53.2 | % |
SG&A | | $ | 54,870 | | | 43.5 | % | | $ | 50,358 | | | 41.9 | % | | $ | 109,701 | | | 43.8 | % | | $ | 96,192 | | | 42.9 | % |
Segment operating income | | $ | 10,582 | | | 8.4 | % | | $ | 12,305 | | | 10.3 | % | | $ | 18,252 | | | 7.3 | % | | $ | 18,210 | | | 8.1 | % |
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 profit | 34,553 |
| | 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 SeptemberJune 30, 20172023 compared to the pro forma three months ended SeptemberJune 30, 20162022
Net sales
Net sales for the three months ended SeptemberJune 30, 20172023 were $72.0$126.0 million as compared to net sales of $74.7$120.0 million for the three months ended SeptemberJune 30, 2016, a decrease2022, an increase of $2.7$6.0 million, or 3.5%5.0%. This decrease is due primarily to a $3.8 million decrease 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%,increase was driven by growing demanda $9.0 million increase in direct to consumer channels. Retaildirect-to-consumer sales grew largely due to sixteenstrong demand in digital sales, in addition to sales from thirty new retail store openings since September 2016June 2022 (bringing the total store count to 24121 as of SeptemberJune 30, 2017). 5.11 implemented2023), as well as a new Enterprise Resource Planning (ERP) system$1.6 million increase in international sales resulting from strong demand and inventory availability. These increases in sales were offset by a decrease of $5.5 million in domestic wholesale sales due to a greater fulfillment of backorders in the prior comparable period.
Gross profit
Gross profit as parta percentage of net sales was 53.9% in 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 2017three months ended June 30, 2023 as compared to 54.2% for the prior year, which resulted in approximately $4 million to $5 million in sales shifting to the fourth quarterthree months ended June 30, 2022. Gross profit as a percentage of 2017. The warehouse reopened on October 9, 2017, and 5.11 has resumed warehouse and shipping operations.
Cost of sales
Cost ofnet sales for the three months ended SeptemberJune 30, 2017 were $37.5 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 sales2023 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 million inventory step-up resulting from the acquisition purchase price allocation. 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. The increase in gross profit percentage is due to lowerunfavorably impacted by increased product costs from efficiency in sourcing operations, improved gross margins on newand promotional activity to drive sales, which was offset favorably by price increases, as well as customer mix and 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.mix.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended SeptemberJune 30, 20172023 was $32.4$54.9 million, or 45.0%,43.5% of net sales compared to $26.0$50.4 million, or 34.8%41.9% of net sales for the comparable period in 2016. This2022. The increase in selling, general and administrative expense was primarily due to sixteen newlargely driven by the costs associated with additional retail stores, that were not open in the prior comparable period, strategic investments intoincreased headcount from June 30, 2022, as well as increased sales and marketing spend related to the increase in digital sales, and integration service fees billed by CGM to 5.11.increased usage of temporary labor during the current quarter.
Loss from operationsSegment operating income
Loss from operationsSegment operating income for the three months ended SeptemberJune 30, 20172023 was $0.3$10.6 million, an increasea decrease of $0.1$1.7 million when compared to loss from operationssegment operating income of $0.4$12.3 million for the same period in 2016,2022, based on the factors described above.
NineSix Months ended June 30, 2023 compared to six months ended SeptemberJune 30, 2017 compared to the pro forma nine months ended September 30, 20162022
Net sales
Net sales for the ninesix months ended SeptemberJune 30, 20172023 were $228.5$250.5 million as compared to net sales of $212.7$224.1 million for the ninesix months ended SeptemberJune 30, 2016,2022, an increase of $15.8$26.4 million, or 7.4%11.8%. This increase is due primarily todriven by an $8.7$18.0 million increase in international direct-to-agency business, and increased retail and e-commerce sales. Direct-to-agencydirect-to-consumer 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 sixteenstrong demand in digital sales, in addition to sales from thirty new retail store openings since September 2016June 2022 (bringing the total store count to 24121 as of SeptemberJune 30, 2017)2023). The consumerAdditionally, international sales increased $6.5 million and domestic wholesale channel experienced a $4.2sales increased $3.6 million decrease due primarily to the bankruptcy of a large outdoor retail customer. 5.11 implemented a new Enterprise Resource Planning (ERP) systemresulting from strong demand 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 2017inventory availability improvement as compared to the prior year, which resultedyear. These
increases were offset by a $1.9 million decrease in approximately $4 milliondirect to $5 millionagency sales due to a large contract fulfillment 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.prior comparable period.
Cost of salesGross profit
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 net sales was 38.0%53.0% in the ninesix months ended SeptemberJune 30, 20172023 as compared to 41.8% in53.2% for the ninesix months ended SeptemberJune 30, 2016. Cost of sales2022. Gross profit percentage for the ninesix months ended SeptemberJune 30, 2017 includes $21.7 million in expense related2023 was unfavorably impacted by increased product costs, promotional activity to a $39.1 million inventory step-up resulting from the acquisition purchasedrive sales and lower margin on direct to agency sales, which was offset favorably by 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 profitincreases, 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 lowerwell as customer mix and 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 profit | 5,415 |
| | 8,549 |
| | 18,760 |
| | 21,933 |
|
Selling, general and administrative expense | 5,121 |
| | 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 2017mix.
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% of net sales for the three months ended September 30, 2016. The selling, general and administrative expense for the three months ended September 30, 2017 includes $0.4 million of acquisition related expenses, $0.4 million of integration services fees payable to CGM, $0.2 million of non-recurring consultant fees and increased expenses associated with higher sales.
(Loss) income from operations
Loss from operations for the three months ended September 30, 2017 was $1.4 million, a decrease of $4.9 million when compared to income from operations of $3.5 million for the same period in 2016, based on the factors described above.
Pro forma 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 $85.8 million compared to net sales of $82.9 million for the nine months ended September 30, 2016, an increase of $2.9 million or 3.5%. The increase in net sales for the nine 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 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 sales for the nine months ended September 30, 2017 includes $3.2 million in expense related to the inventory step-up resulting from the preliminary purchase price allocation. Excluding the effect of the inventory step-up, gross profit as a percentage of sales was 25.5% for the nine months ended September 30, 2017 as compared to 26.4% for the nine 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 ninesix months ended SeptemberJune 30, 20172023 was $13.7$109.7 million, or 16.0%43.8% of net sales compared to $11.1$96.2 million, or 13.4%,42.9% of net sales for the nine months ended September 30, 2016. Selling,comparable period in 2022. The increase in selling, general and administrative expense for the ninesix months ended SeptemberJune 30, 2017 includes $1.8 million in transaction2023 was largely driven by the costs paid in relation to the acquisition of Crosman inassociated with additional retail stores, increased headcount from June 2017 and an add-on acquisition at Crosman completed during the third quarter of 2017,30, 2022, as well as $0.4 millionincreased sales and marketing spend related to the increase in integration services fees payable to CGM. Excluding the transaction costsdigital sales, increased usage of temporary labor, and integration services fee from the selling, general and administrative expense, there was no material change in expense items.bonus related expenses.
Segment operating income
Income from operations
Income from operationsSegment operating income for the ninesix months ended SeptemberJune 30, 20172023 was $1.2$18.3 million, which represents a decrease of $5.8 millionslight increase when compared to segment operating income from operations of $7.0$18.2 million for the comparablesame period in 2016,2022, based on the factors described above.
Ergobaby
OverviewBOA
Ergobaby, headquartered 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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
Net sales | | $ | 38,123 | | | 100.0% | | $ | 59,386 | | | 100.0% | | $ | 76,109 | | | 100.0% | | $ | 116,196 | | | 100.0% |
Gross profit | | $ | 22,807 | | | 59.8% | | $ | 36,406 | | | 61.3% | | $ | 45,598 | | | 59.9% | | $ | 72,098 | | | 62.0% |
SG&A | | $ | 10,573 | | | 27.7% | | $ | 13,785 | | | 23.2% | | $ | 21,233 | | | 27.9% | | $ | 26,498 | | | 22.8% |
| | | | | | | | | | | | | | | | |
Segment operating income | | $ | 8,050 | | | 21.1% | | $ | 18,451 | | | 31.1% | | $ | 16,001 | | | 21.0% | | $ | 37,262 | | | 32.1% |
Results of Operations
The table below summarizes the income from operations data for Ergobaby 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 | $ | 27,835 |
|
| $ | 29,664 |
| | $ | 77,737 |
| | $ | 75,048 |
|
Cost of sales | 9,003 |
|
| 13,818 |
| | 25,491 |
| | 29,169 |
|
Gross profit | 18,832 |
|
| 15,846 |
| | 52,246 |
| | 45,879 |
|
Selling, general and administrative expense | 9,973 |
|
| 9,947 |
| | 28,359 |
| | 27,489 |
|
Fees to manager | 125 |
|
| 125 |
| | 375 |
| | 375 |
|
Amortization of intangibles | 2,850 |
|
| 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 ended SeptemberJune 30, 20172023 compared to the three months ended SeptemberJune 30, 20162022
Net sales
Net sales for the three months ended SeptemberJune 30, 20172023 were $27.8$38.1 million a decrease of $1.8 million, or 6.2%,as compared to the same period in 2016. Netnet 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$59.4 million for the three months ended SeptemberJune 30, 2016. During the three months ended September 30, 2017, international sales were approximately $17.0 million, representing2022, a decrease of $0.3$21.3 million, overor 35.8%. The main factor of 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 thehigher than anticipated end market 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 million, an increase of $2.7 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,levels due to supply chain normalization and corresponding inventory ordering surge experienced in many of our industries in 2022. We anticipate a normalization of inventory levels by the increases in direct market sales, to increases in employee related costs due to increased staffing levels, due in part to the additionend 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 priorthis year.
Loss on disposal of assetsGross profit
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 sales | 13,026 |
|
| 17,680 |
| | 47,157 |
| | 53,197 |
|
Gross profit | 5,397 |
|
| 6,130 |
| | 18,851 |
| | 21,516 |
|
Selling, general and administrative expense | 3,204 |
|
| 3,332 |
| | 11,284 |
| | 10,483 |
|
Fees to manager | 125 |
|
| 125 |
| | 375 |
| | 375 |
|
Amortization of intangibles | 18 |
|
| 256 |
| | 292 |
| | 779 |
|
Income from operations | $ | 2,050 |
|
| $ | 2,417 |
| | $ | 6,900 |
| | $ | 9,879 |
|
Three months ended September 30, 2017 compared to the three months ended September 30, 2016
Net sales
Net sales for the quarter ended September 30, 2017 decreased approximately $5.4 million, or 22.6%, to $18.4 million, 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 is primarily attributable to the bankruptcy filing by a national retailer in the first quarter of 2017. The decrease in sales in the Dealer channel can be attributed to lower overall market demand in the third quarter of 2017 as compared to the third quarter of 2016.
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 increasewas 59.8% in gross profit as a percentage of sales during the three months ended SeptemberJune 30, 20172023 as 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 million61.3% for the three months ended SeptemberJune 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.2022. 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 pioneerwas driven by fixed manufacturing overhead expenses 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 sales | 7,792 |
| | 8,988 |
| | 23,412 |
| | 24,442 |
|
Gross profit | 6,156 |
| | 6,932 |
| | 19,213 |
| | 19,879 |
|
Selling, general and administrative expense | 5,065 |
| | 5,072 |
| | 15,502 |
| | 17,075 |
|
Fees to manager | 87 |
| | 88 |
| | 262 |
| | 261 |
|
Amortization of intangibles | 1,173 |
| | 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. Thean increase in gross profit as a percentage of sales in the third quarter of 2017 as compareddepreciation related 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.tooling.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended SeptemberJune 30, 20172023 was approximately $5.1$10.6 million, in both the third quarter of 2017 and 2016. Selling, general and administrative expense was 36.3%or 27.7% of net sales in the third quarter of 2017 as compared to 31.9%$13.8 million, or 23.2% of net sales for the samecomparable period in 2016.2022. The increasedecrease 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 wasis primarily due to ongoing investments in keydecreased employee costs related to BOA’s bonus plan.
Segment operating capability initiatives such as marketing, sales and research and development.income
Income (loss) from operations
Income from operationsSegment operating income for the three months ended SeptemberJune 30, 2017 decreased $0.72023 was $8.1 million, a decrease of $10.4 million when compared to segment operating income of $18.5 million for the same period in 2016,2022, based on the factors described above.
NineSix Months ended June 30, 2023 compared to six months ended SeptemberJune 30, 2017 compared to nine months ended September 30, 20162022
Net sales
Net sales for the ninesix months ended SeptemberJune 30, 20172023 were approximately $42.6$76.1 million as compared to $44.3net sales of $116.2 million for the ninesix months ended SeptemberJune 30, 2016,2022, a decrease of $1.7$40.1 million, or 3.8%34.5%. Manitoba HarvestThe main factor of the decrease in sales was higher than anticipated end market inventory levels due to supply chain normalization and corresponding inventory ordering surge experienced declines in bulk hemp seed ingredient sales to international markets. This was partially offsetmany of our industries in 2022. We anticipate a normalization of inventory levels by growth in their Canadian retail, U.S. club and online businesses, driven by salesthe end of branded hemp heart products and hemp oil.this year.
Gross profit
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 net sales was 45.1%59.9% in the ninesix months ended SeptemberJune 30, 2017 and 44.9% in2023 as compared to 62.0% for the ninesix months ended SeptemberJune 30, 2016. For the first nine months of the year,2022. The decrease in gross profit marginsas a percentage of net sales was driven by fixed manufacturing overhead expenses and an increase in our branded business expanded duedepreciation related 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.
tooling.
Selling, general and administrative expense
Selling, general and administrative expense for the ninesix months ended SeptemberJune 30, 2017 decreased to approximately $15.52023 was $21.2 million, or 36.4%27.9% of net sales compared to $17.1$26.5 million, or 38.5%22.8% of net sales for the comparable period in 2022. The decrease in selling, general, and administrative expense is primarily due to decreased employee costs related to BOA’s bonus plan.
Segment operating income
Segment operating income for the six months ended June 30, 2023 was $16.0 million, a decrease of $21.3 million when compared to segment operating income of $37.3 million for the same period in 2022, based on the factors described above.
Ergobaby
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
Net sales | | $ | 26,149 | | | 100.0 | % | | $ | 26,506 | | | 100.0 | % | | $ | 48,567 | | | 100.0 | % | | $ | 46,716 | | | 100.0 | % |
Gross profit | | $ | 16,804 | | | 64.3 | % | | $ | 16,795 | | | 63.4 | % | | $ | 30,919 | | | 63.7 | % | | $ | 28,972 | | | 62.0 | % |
SG&A | | $ | 12,286 | | | 47.0 | % | | $ | 11,258 | | | 42.5 | % | | $ | 24,023 | | | 49.5 | % | | $ | 21,725 | | | 46.5 | % |
Segment operating income | | $ | 2,526 | | | 9.7 | % | | $ | 3,549 | | | 13.4 | % | | $ | 2,914 | | | 6.0 | % | | $ | 3,273 | | | 7.0 | % |
Three months ended June 30, 2023 compared to three months ended June 30, 2022
Net sales
Net sales for the three months ended June 30, 2023 were $26.1 million, a decrease of $0.4 million, or 1.3%, compared to the same period in 2022. During the three months ended June 30, 2023, international sales were approximately $16.1 million, representing a decrease of $0.5 million over the corresponding period in 2022, primarily as a result of European distributor sales. Domestic sales were $10.0 million in the second quarter of 2023, reflecting an increase of $0.2 million compared to the corresponding period in 2022. The increase in sales was primarily due to increases on our owned websites which were offset by the closure of a large domestic retailer.
Gross profit
Gross profit as a percentage of net sales was 64.3% for the three months ended June 30, 2023, as compared to 63.4% for the three months ended June 30, 2022. The increase in gross profit as a percentage of sales was due to shifts in channel mix.
Selling, general and administrative expense
Selling, general and administrative expense increased $1.0 million quarter over quarter, with expense of $12.3 million, or 47.0% of net sales for the three months ended June 30, 2023 as compared to $11.3 million or 42.5% of net sales for the same period of 2022. The increase in 2016. The $1.6 million decreaseselling, general and administrative expense in the ninethree months ended SeptemberJune 30, 20172023 as compared to the comparable period in the prior year is due to payroll expenses and accruals, transportation costs and warehousing as well as increased marketing expenses.
Segment operating income
Ergobaby had segment operating income of $2.5 million for the three months ended June 30, 2023, a decrease of $1.0 million compared to the same period in 20162022, based on the factors noted above.
Six Months ended June 30, 2023 compared to six months ended June 30, 2022
Net sales
Net sales for the six months ended June 30, 2023 were $48.6 million, an increase of $1.9 million, or 4.0%, compared to the same period in 2022. During the six months ended June 30, 2023, international sales were approximately $29.7 million, representing an increase of $1.0 million over the corresponding period in 2022, primarily as a result of Asia-Pacific and Latin America distributor sales. Domestic sales were $18.8 million in the first half of 2023, reflecting an increase of $0.8 million compared to the corresponding period in 2022. The increase in sales was primarily due to lower customer shipping costs, more efficient field selling operations and the timingour owned websites as well as key accounts. Both groups saw increases in existing product categories as well as continued sales from products launched late last year.
Gross profit
Gross profit as a percentage of our consumer promotion spending.
Income (loss) from operations
Income from operationsnet sales was 63.7% for the ninesix months ended SeptemberJune 30, 20172023, as compared to 62.0% for the six months ended June 30, 2022. The increase in gross profit as a percentage of sales was approximately $0.1due to a reduction in inbound freight compared to the prior year as well as shifts in channel mix.
Selling, general and administrative expense
Selling, general and administrative expense increased $2.3 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, with expense of $24.0 million, or 49.5% of net sales for the six months ended June 30, 2023 as compared to $21.7 million or 46.5% of net sales for the same period of 2022. The increase in selling, general and administrative expense in the six months ended June 30, 2023 as compared to the comparable period in the prior year is due to payroll expenses and accruals, transportation costs and warehousing as well as increased marketing expenses.
Segment operating income
Ergobaby had segment operating income of $2.9 million for the six months ended June 30, 2023, a decrease of $0.4 million compared to loss from operations of $0.9 million in the same period in 2016,2022, based on the factors describednoted 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 sales | 12,137 |
| | 12,066 |
| | 36,095 |
| | 36,024 |
|
Gross profit | 10,299 |
| | 9,613 |
| | 30,309 |
| | 28,921 |
|
Selling, general and administrative expense | 3,673 |
| | 3,417 |
| | 10,895 |
| | 10,370 |
|
Fees to manager | 125 |
| | 125 |
| | 375 |
| | 375 |
|
Amortization of intangibles | 310 |
| | 312 |
| | 933 |
| | 935 |
|
Income from operations | $ | 6,191 |
| | $ | 5,759 |
| | $ | 18,106 |
| | $ | 17,241 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
Net sales | | $ | 60,949 | | | 100.0 | % | | $ | 39,065 | | | 100.0 | % | | $ | 124,836 | | | 100.0 | % | | $ | 86,084 | | | 100.0 | % |
Gross profit | | $ | 33,698 | | | 55.3 | % | | $ | 19,647 | | | 50.3 | % | | $ | 67,975 | | | 54.5 | % | | $ | 43,079 | | | 50.0 | % |
SG&A | | $ | 15,138 | | | 24.8 | % | | $ | 8,575 | | | 22.0 | % | | $ | 28,211 | | | 22.6 | % | | $ | 17,063 | | | 19.8 | % |
Segment operating income | | $ | 17,133 | | | 28.1 | % | | $ | 9,644 | | | 24.7 | % | | $ | 36,909 | | | 29.6 | % | | $ | 23,250 | | | 27.0 | % |
Three months ended SeptemberJune 30, 20172023 compared to the three months ended SeptemberJune 30, 20162022
Net sales
Net sales for the three monthsquarter ended SeptemberJune 30, 20172023 increased approximately $0.8$21.9 million, or 56.0%, to $22.4$60.9 million, compared to the three monthscorresponding quarter ended SeptemberJune 30, 2016. The increase2022. Lugano sells high-end jewelry primarily through retail salons in netCalifornia, Florida, Texas, Washington D.C. and Colorado, and via pop-up showrooms at multiple equestrian, social and charitable functions each year. In the current year, Lugano has experienced strong same store sales was duegrowth as it has invested in building out its inventory as well as its sales, marketing and event staff, while increasing the number of social and charitable functions it has attended. Lugano also opened its Washington D.C. location in March 2023 and expects to increasedopen more retail locations in the near term to further expand 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.opportunities.
Cost of salesGross profit
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 net sales increased 160 basis points duringtotaled approximately 55.3% and 50.3% for the three monthsquarters ended SeptemberJune 30, 2017 compared2023 and June 30, 2022, respectively. Lugano has an extensive network of suppliers through which they procure high quality diamonds and gemstones, which make up a significant percentage of the cost of sales. The increase in margins is attributable to the corresponding periodpricing and product mix, especially in 2016 (45.9% at September 30, 2017 compared to 44.3% at September 30, 2016) primarily as a result of sales mix.its higher priced jewelry pieces.
Selling, general and administrative expense
Selling, general and administrative expense was approximately $3.7$15.1 million for the three months ended June 30, 2023 as compared to $8.6 million in selling, general and administrative expense in the three months ended SeptemberJune 30, 2017 and $3.4 million in the three months ended September 30, 2016.2022. Selling, general and administrative expense represented 16.4%24.8% of net sales in the three months ended March 31, 2023 and 22.0% of net sales for the same period of 2022. The increase in selling, general and administrative expense is primarily due to increased marketing spend and personnel costs. Lugano has increased its head count in the last year as it invests in additional professionals to support its growth.
Segment operating income
Segment operating income increased during the three months ended SeptemberJune 30, 20172023 to $17.1 million, as compared to 15.8% of net sales$9.6 million in the corresponding period in 2016.
Income from operations
Income from operations for the three months ended September 30, 20172022. This increase was approximately $6.2 million compared to $5.8 million in the same period in 2016, an increase of approximately $0.4 million, principally as a result of the factors describednoted above.
NineSix Months ended June 30, 2023 compared to six months ended SeptemberJune 30, 2017 compared to nine months ended September 30, 20162022
Net sales
Net sales for the ninesix months ended SeptemberJune 30, 20172023 increased approximately $1.5$38.8 million, or 45.0%, to $66.4$124.8 million, as compared to the ninecorresponding six months ended SeptemberJune 30, 2016. The2022. Lugano sells high-end jewelry primarily through retail salons in California, Florida, Texas, Washington D.C. and Colorado, and via pop-up showrooms at multiple equestrian, social and charitable functions each year. In the current year, Lugano has experienced an increase in net sales duringfrom its existing locations as it has invested in building out its inventory as well as its sales, marketing and event staff, while increasing the nine months ended September 30, 2017 was duenumber of social and charitable functions it has attended. Lugano also opened its Washington D.C. location in March 2023 and expects to increasedopen more retail locations in the near term to further expand sales in Quick-Turn Production PCBs by approximately $1.2 million, Long-Lead Time PCBs by approximately $0.7 million, Subcontract by approximately $0.5 million, and decreased promotions by approximately $0.3 million. This was partially offset by decreases in Assembly by approximately $0.7 million and Quick-Turn Small-Run PCBs by approximately $0.6 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 Septemberopportunities.
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 110 basis pointstotaled approximately 54.5% and 50.0% for the six months ended June 30, 2023 and June 30, 2022, respectively. Lugano has an extensive network of suppliers through which they procure high quality diamonds and gemstones, which make up a significant percentage of the cost of sales. The uniqueness of the Lugano jewelry can lead to fluctuations in margins from period to period based on what designs are sold during the nine months ended September 30, 2017 compared to the same period in 2016 (45.6% at September 30, 2017 compared to 44.5% at September 30, 2016) primarily as a result of sales mix.
period.
Selling, general and administrative expense
Selling, general and administrative expense was approximately $10.9$28.2 million infor the ninesix months ended SeptemberJune 30, 20172023 as compared to $10.4$17.1 million in selling, general and administrative expense in the ninesix months ended SeptemberJune 30, 2016.2022. Selling, general and administrative expense represented 16.4%22.6% of net sales in the six months ended June 30, 2023 and 19.8% of net sales for the ninesame period of 2022. The increase in selling, general and administrative expense is attributable to increased marketing spend and personnel costs in support of Lugano’s growth in sales and expansion into new markets as well as rent and operating costs for its new locations.
Segment operating income
Segment operating income increased during the six months ended SeptemberJune 30, 20172023 to $36.9 million, as compared to 16.0% of net sales in the prior year's corresponding period.
Income from operations
Income from operations for the nine months ended September 30, 2017 was approximately $18.1 million compared to $17.2$23.3 million in the samecorresponding period in 2016, an2022. This increase of approximately $0.9 million, principally aswas a result of the factors describednoted above.
51
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 sales | 19,136 |
| | 20,520 |
| | 58,847 |
| | 63,829 |
|
Gross profit | 7,353 |
| | 6,392 |
| | 20,574 |
| | 18,962 |
|
Selling, general and administrative expense | 4,374 |
| | 4,535 |
| | 13,285 |
| | 12,117 |
|
Fees to manager | 125 |
| | 125 |
| | 375 |
| | 375 |
|
Amortization of intangibles | 854 |
| | 881 |
| | 2,601 |
| | 2,642 |
|
Impairment expense | — |
| | — |
| | 8,864 |
| | — |
|
Income (loss) from operations | $ | 2,000 |
| | $ | 851 |
| | $ | (4,551 | ) | | $ | 3,828 |
|
Marucci Sports
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
Net sales | | $ | 37,270 | | | 100.0 | % | | $ | 27,636 | | | 100.0 | % | | $ | 95,565 | | | 100.0 | % | | $ | 79,728 | | | 100.0 | % |
Gross profit | | $ | 20,249 | | | 54.3 | % | | $ | 12,612 | | | 45.6 | % | | $ | 53,016 | | | 55.5 | % | | $ | 35,958 | | | 45.1 | % |
SG&A | | $ | 14,462 | | | 38.8 | % | | $ | 11,710 | | | 42.4 | % | | $ | 30,364 | | | 31.8 | % | | $ | 24,833 | | | 31.1 | % |
Segment operating income (loss) | | $ | 2,962 | | | 7.9 | % | | $ | (1,436) | | | (5.2) | % | | $ | 17,302 | | | 18.1 | % | | $ | 6,449 | | | 8.1 | % |
Three months ended SeptemberJune 30, 20172023 compared to the three months ended SeptemberJune 30, 20162022
Net sales
Net sales for the three months ended SeptemberJune 30, 20172023 were approximately $26.5$37.3 million, a decreasean increase of $0.4$9.6 million as compared to net sales of $27.6 million for the three months ended June 30, 2022. The increase in net sales was due to increased customer demand, particularly at big-box retailers and through direct-to-consumer channels, and market share growth in Marucci's key product lines, including aluminum and wood bats, and batting gloves. Marucci completed an add-on acquisition in early April, Baum Bat, a designer and manufacturer of composite bats, which allowed further penetration of the wood bat market during the quarter.
Gross profit
Gross profit for the quarter ended June 30, 2023 increased $7.6 million as compared to the three months ended June 30, 2022. Gross profit as a percentage of net sales for the three months ended June 30, 2023 was 54.3%, as compared to gross profit as a percentage of sales of 45.6% for the three months ended June 30, 2022. The increase in gross profit as a percentage of net sales during the quarter ended June 30, 2023 as compared to the quarter ended June 30, 2022, was primarily due to higher spending on air-freight in the prior year quarter as supply chain issues led to increased transportation costs, and higher direct to consumer sales during the current quarter, which carry higher margins.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended June 30, 2023 was $14.5 million, or 38.8% of net sales compared to $11.7 million, or 42.4% of net sales for the three months ended June 30, 2022. The increase in selling, general and administrative expense for the three months ended June 30, 2023 partially correlates to the increase in net sales, with increases in credit card expenses, royalties, commissions, business development fees, and other variable expenses. Marucci also incurred additional promotional and marketing expenses in the current quarter due to seasonal programs at several retail customers, and increased operational expenses to support its growth.
Segment operating income (loss)
Segment operating income for the three months ended June 30, 2023 was $3.0 million, an increase of $4.4 million when compared to segment operating loss of $1.4 million for the same period in 2016. The decrease in net sales is primarily a result of a decrease in reprographic sales in the PMAG reporting unit. International sales were $10.6 million in 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,2022, primarily as a result of the decreasefactors noted above.
Six Months ended June 30, 2023 compared to six months ended June 30, 2022
Net sales
Net sales for the six months ended June 30, 2023 were $95.6 million, an increase of $15.8 million as compared to net sales of $79.7 million for the six months ended June 30, 2022. The increase in net sales at PMAG.was primarily due to increased customer demand and market share in many of Marucci's key product lines, including aluminum and wood bats, and batting gloves.
CostGross profit
Gross profit for the six months ended June 30, 2023 increased $17.1 million as compared to the six months ended June 30, 2022. Gross profit as a percentage of net sales for the six months ended June 30, 2023 was 55.5%, as compared to gross profit as a percentage of sales of 45.1% for the six months ended June 30, 2022. The increase
in gross profit as a percentage of net sales during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, was primarily due to higher spending on air-freight in the prior year as supply chain issues led to increased transportation costs, and higher direct to consumer sales during the current year, which carry higher margins.
Selling, general and administrative expense
Selling, general and administrative expense for the six months ended June 30, 2023 was $30.4 million, or 31.8% of net sales compared to $24.8 million, or 31.1% of net sales for the six months ended June 30, 2022. The increase in selling, general and administrative expense for the six months ended June 30, 2023 partially correlates to the increase in net sales, with increases in credit card expenses, royalties, commissions, business development fees, and other variable expenses. Marucci also incurred additional promotional and marketing expenses in the current period due to seasonal programs at several retail customers, and increased operational expenses to support its growth.
Segment operating income
Segment operating income for the six months ended June 30, 2023 was $17.3 million, an increase of $10.9 million when compared to segment operating income of $6.4 million for the same period in 2022, primarily as a result of the factors noted above.
PrimaLoft
In the following results of operations, we provide comparative pro forma results of operations for PrimaLoft for the three and six months ended June 30, 2022 as if we had acquired the business on January 1, 2022. The results of operations that follows include relevant pro-forma adjustments for pre-acquisition periods and explanations where applicable. The operating results for PrimaLoft have been included in the consolidated results of operation from the date of acquisition in July 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
| | | | | | Pro forma | | | | | | | | Pro forma | | |
Net sales | | $ | 22,160 | | | 100.0 | % | | $ | 27,118 | | | 100.0 | % | | $46,689 | | 100.0 | % | | $ | 52,866 | | | 100.0 | % |
Gross profit | | $ | 13,977 | | | 63.1 | % | | $ | 16,539 | | | 61.0 | % | | $29,557 | | 63.3 | % | | $ | 32,035 | | | 60.6 | % |
SG&A | | $ | 5,706 | | | 25.7 | % | | $ | 5,514 | | | 20.3 | % | | $10,812 | | 23.2 | % | | $ | 10,226 | | | 19.3 | % |
Segment operating income | | $ | 2,817 | | | 12.7 | % | | $ | 5,572 | | | 20.5 | % | | $7,838 | | 16.8 | % | | $ | 10,902 | | | 20.6 | % |
Pro forma results of operations include the following pro form adjustments as if we had acquired PrimaLoft January 1, 2022:
•Additional amortization expense associated with the intangible assets recorded in connection with the purchase price allocation of PrimaLoft of $4.1 million and $8.1 million, respectively, for the three months and six months ended June 30, 2022.
•Management fees that would have been payable to the Manager during the period.
Three months ended June 30, 2023 compared to proforma three months ended June 30, 2022
Net sales
Net sales for the three months ended SeptemberJune 30, 20172023 were approximately $19.1$22.2 million, a decrease of $5.0 million as compared to approximately $20.5net sales of $27.1 million for the three months ended June 30, 2022. The decrease in net sales in the same periodcurrent quarter versus the quarter ended June 30, 2022 is attributable to lower ordering from existing customers as a result of 2016.higher inventory levels at retail customers which more than offset new customer wins. We expect that retail ordering will begin to normalize by the end of this year.
Gross profit
Gross profit for the quarter ended June 30, 2023 decreased $2.6 million as compared to the three months ended June 30, 2022. Gross profit as a percentage of net sales increased from 23.8% for the quarterthree months ended SeptemberJune 30, 20162023 was 63.1%, as compared to 27.8%gross profit as a percentage of sales of 61.0% for the three months ended June 30, 2022. The increase in gross profit as a percentage of net sales in the quarter ended SeptemberJune 30, 2017 principally2023 as compared to the quarter
ended June 30, 2022 is due to manufacturing efficiencies and favorable sales mix.
price increases implemented in the fourth quarter of 2022.
Selling, general and administrative expense
Selling, general and administrative expense in the three month period ended September 30, 2017 was $4.4 million, comparable to approximately $4.5 million for the three months ended SeptemberJune 30, 2016.
Income from operations
Income from operations2023 was $5.7 million, or 25.7% of net sales compared to $5.5 million, or 20.3% of net sales for the three months ended SeptemberJune 30, 20172022. Selling, general and administrative expense in the current quarter includes $1.2 million in integration services fees.
Segment operating income
Segment operating income for the three months ended June 30, 2023 was approximately $2.0$2.8 million, an increasea decrease of $1.1$2.8 million when compared to segment operating income of $5.6 million for the same period in 2016, principally2022, primarily as a result of the factors noted above.
NineSix Months ended June 30, 2023 compared to proforma six months ended SeptemberJune 30, 20172022
Net sales
Net sales for the six months ended June 30, 2023 were $46.7 million, a decrease of $6.2 million as compared to ninenet sales of $52.9 million for the six months ended SeptemberJune 30, 20162022. The decrease in net sales in the current period versus the six months ended June 30, 2022 is attributable to higher than anticipated end market inventory levels leading to lower ordering from existing customers in the first half of the year. We expect that retail ordering will begin to normalize by the end of this year.
Gross profit
Gross profit for the six months ended June 30, 2023 decreased $2.5 million as compared to the six months ended June 30, 2022. Gross profit as a percentage of net sales for the six months ended June 30, 2023 was 63.3%, as compared to gross profit as a percentage of sales of 60.6% for the six months ended June 30, 2022. The increase in gross profit as a percentage of net sales in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 is due to price increases implemented in the fourth quarter of 2022.
Selling, general and administrative expense
Selling, general and administrative expense for the six months ended June 30, 2023 was $10.8 million, or 23.2% of net sales compared to $10.2 million, or 19.3% of net sales for the six months ended June 30, 2022. Selling, general and administrative expense in the six months ended includes $2.4 million in integration services fees. Excluding the integration services fee, selling, general and administrative expense decreased due to reduced selling expenses resulting from the lower level of sales in the first half of 2023 as compared to the prior year.
Segment operating income
Segment operating income for the six months ended June 30, 2023 was $7.8 million, a decrease of $3.1 million when compared to segment operating income of $10.9 million for the same period in 2022, primarily as a result of the factors noted above.
Velocity Outdoor
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| | Three months ended | | Six months ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
Net sales | | $ | 37,839 | | | 100.0 | % | | $ | 53,846 | | | 100.0 | % | | $ | 71,879 | | | 100.0 | % | | $ | 105,292 | | | 100.0 | % |
Gross profit | | $ | 10,001 | | | 26.4 | % | | $ | 14,992 | | | 27.8 | % | | $ | 18,016 | | | 25.1 | % | | $ | 28,364 | | | 26.9 | % |
SG&A | | $ | 9,090 | | | 24.0 | % | | $ | 7,154 | | | 13.3 | % | | $ | 17,860 | | | 24.8 | % | | $ | 15,051 | | | 14.3 | % |
Segment operating (loss) income | | $ | (1,610) | | | (4.3) | % | | $ | 5,429 | | | 10.1 | % | | $ | (4,886) | | | (6.8) | % | | $ | 8,496 | | | 8.1 | % |
Three months ended June 30, 2023 compared to three months ended June 30, 2022
Net sales
Net sales for the ninethree months ended SeptemberJune 30, 20172023 were approximately $79.4$37.8 million, a decrease of $3.4 million compared to the same period in 2016. The decrease in net sales is primarily a result of decreases in the PMAG ($1.8 million) and Flexmag ($1.5 million) product sectors. PMAG sales represented approximately 73% of net sales for the nine months ended September 30, 2017 and 72% of net sales for the nine months ended September 30, 2016. The decrease in PMAG sales is principally attributable to lower 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$16.0 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 costs and lower depreciation expense.
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 services | 39,787 |
| | 36,863 |
| | 110,639 |
| | 95,967 |
|
Gross profit | 15,889 |
| | 14,652 |
| | 42,731 |
| | 38,068 |
|
Selling, general and administrative expense | 6,782 |
| | 7,352 |
| | 25,205 |
| | 22,263 |
|
Fees to manager | 125 |
| | 125 |
| | 375 |
| | 375 |
|
Amortization of intangibles | 3,390 |
| | 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%29.7%, compared to the same period in 2016.2022. The increasedecrease 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 decreasednet sales for the three months ended SeptemberJune 30, 20172023 is primarily due to softening consumer demand caused by macro-economic factors.
Gross profit
Gross profit for the quarter ended June 30, 2023 decreased $5.0 million 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 monthsquarter ended SeptemberJune 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.2022. Gross profit as a percentage of service revenues was flat quarter over quarter, increasing from 28.4%net sales decreased to 26.4% for the three month periodmonths ended SeptemberJune 30, 20162023 as compared to 28.5% for27.8% in the same periodthree months ended SeptemberJune 30, 2017.
2022 due to product mix along with reduced absorption of operating costs.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended SeptemberJune 30, 2017 decreased to approximately $6.82023 was $9.1 million, or 12.2%,24.0% of service revenues,net sales compared to $7.2 million, or 13.3% of net sales for the three months ended June 30, 2022. The increase in selling, general and administrative expense as a percentage in net sales for the three months ended June 30, 2023 as compared to $7.4the prior period is driven by reduced revenue, marketing investments associated with the King's acquisition and non-recurring expenses.
Segment operating income (loss)
Segment operating loss for the three months ended June 30, 2023 was $1.6 million, or 14.3%,a decrease of service revenues$7.0 million when compared to segment operating income of $5.4 million for the same period in 2016. The decrease was primarily due2022 based on the factors noted above.
Six Months ended June 30, 2023 compared to decreased labor costs.six months ended June 30, 2022
Net sales
Income from operations
Income from operationsNet sales for the threesix months ended SeptemberJune 30, 2017 was approximately $5.62023 were $71.9 million, as compared to income from operationsa decrease 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$33.4 million or 14.4%31.7%, compared to the same period in 2016.2022. The increasedecrease in service revenuesnet sales for the six months ended June 30, 2023 is principallyprimarily due to two acquisitions in 2016 and one in 2017, as well as increased contaminated soil revenue, offset in part by lower dredge revenue.softening consumer demand among our target customer base due to macro-economic factors.
Gross profit
ForGross profit for the ninesix months ended SeptemberJune 30, 2017, contaminated soil revenue increased 13%2023 decreased $10.3 million 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 ninesix months ended SeptemberJune 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 2016.2022. Gross profit as a percentage of service revenuesnet sales decreased from 28.4%to 25.1% 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 ninesix months ended SeptemberJune 30, 2017 was primarily2023 as compared to 26.9% in the six months ended June 30, 2022 due to product mix along with reduced dredged material volume.
absorption of operating costs.
Selling, general and administrative expense
Selling, general and administrative expense for the ninesix months ended SeptemberJune 30, 2017 increased to approximately $25.22023 was $17.9 million, or 16.4%,24.8% of service revenues, asnet sales compared to $22.3$15.1 million, or 16.6%,14.3% of service revenuesnet sales for the same period in 2016.six months ended June 30, 2022. The $2.9 million increaseincrease in selling, general and administrative expense inas a percentage of net sales for the ninesix months ended SeptemberJune 30, 2017 compared to 2016 is primarily attributable to acquisitions and increased corporate expenses.
Income from operations
Income from operations for the nine months ended September 30, 2017 was approximately $7.6 million, an increase of $1.7 million2023 as compared to the nineprior period is driven by reduced revenue, marketing investments associated with the King's acquisition and non-recurring expenses.
Segment operating income (loss)
Segment operating loss for the six months ended SeptemberJune 30, 2016, primarily as2023 was $4.9 million, a resultdecrease of those factors described above.
Sterno Products
Overview
Sterno Products, headquartered in Corona, California, is a manufacturer and marketer$13.4 million when compared to segment operating income of portable food warming fuel and creative table lighting solutions$8.5 million 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 formedsame period in 2012 with2022 based on 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.factors noted above.
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 sales | 38,865 |
| | 39,744 |
| | 119,975 |
| | 113,724 |
|
Gross Profit | 13,831 |
| | 15,838 |
| | 43,117 |
| | 42,968 |
|
Selling, general and administrative expense | 7,466 |
| | 8,556 |
| | 23,872 |
| | 23,568 |
|
Management fees | 125 |
| | 125 |
| | 375 |
| | 375 |
|
Amortization of intangibles | 1,829 |
| | 1,621 |
| | 5,487 |
| | 4,930 |
|
Income from operations | $ | 4,411 |
| | $ | 5,536 |
| | $ | 13,383 |
| | $ | 14,095 |
|
Niche Industrial BusinessesAltor Solutions
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| | Three months ended | | Six months ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
Net sales | | $ | 60,886 | | | 100.0 | % | | $ | 66,144 | | | 100.0 | % | | $ | 122,398 | | | 100.0 | % | | $ | 129,972 | | | 100.0 | % |
Gross profit | | $ | 19,558 | | | 32.1 | % | | $ | 13,823 | | | 20.9 | % | | $ | 36,271 | | | 29.6 | % | | $ | 27,962 | | | 21.5 | % |
SG&A | | $ | 7,739 | | | 12.7 | % | | $ | 5,285 | | | 8.0 | % | | $ | 14,921 | | | 12.2 | % | | $ | 11,005 | | | 8.5 | % |
Segment operating income | | $ | 9,224 | | | 15.1 | % | | $ | 5,908 | | | 8.9 | % | | $ | 16,158 | | | 13.2 | % | | $ | 11,742 | | | 9.0 | % |
Three months ended SeptemberJune 30, 20172023 compared to the three months ended SeptemberJune 30, 20162022
Net sales
Net sales for the three monthsquarter ended SeptemberJune 30, 20172023 were approximately $52.7$60.9 million, a decrease of $2.9$5.3 million, or 5.2%7.9%, compared to the same period in 2016. quarter ended June 30, 2022. The sales variance reflects a decrease in net sales atduring the candlequarter was due to lower volume versus the second quarter of 2022, primarily in construction and outdoor divisions of Sterno Home, offset by the timing of stocking programs of key Sterno food service customers.building products.
Cost of salesGross profit
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 net sales decreased from 28.5%was 32.1% and 20.9% for the three months ended SeptemberJune 30, 2016 to 26.2% for the same period ended September 30, 2017.2023 and 2022, respectively. The decreaseincrease in gross profit duringas a percentage of net sales in the three monthsquarter ended SeptemberJune 30, 20172023, was primarily reflects an increase in chemicaldue to favorable raw material costs and lower margins on certain sales.market decreases.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended SeptemberJune 30, 20172023 was $7.7 million as compared to $5.3 million for the three months ended June 30, 2022, an increase of $2.5 million. The increase in selling, general and 2016administrative expense in the second quarter of 2023 was approximately $7.5due to operational and administrative investments made in the business in the latter part of 2022.
Segment operating income
Segment operating income was $9.2 million in the three months ended June 30, 2023, an increase of $3.3 million as compared to the three months ended June 30, 2022, based on the factors noted above.
Six Months ended June 30, 2023 compared to six months ended June 30, 2022
Net sales
Net sales for the six months ended June 30, 2023 were $122.4 million, a decrease of $7.6 million, or 5.8%, compared to the six months ended June 30, 2022. The decrease in net sales during the period was due to lower volume as compared to the prior year, primarily in construction and $8.6 million,building products.
Gross profit
Gross profit as a percentage of net sales was 29.6% and 21.5% for the six months ended June 30, 2023 and 2022, respectively. The increase in gross profit as a percentage of net sales in the six months ended June 30, 2023, was primarily due to the combination of customer and raw material pricing adjustments.
Selling, general and administrative expense
Selling, general and administrative expense for the six months ended June 30, 2023 was $14.9 million as compared to $11.0 million for the six months ended June 30, 2022, an increase of $3.9 million. The increase in selling, general and administrative expense in the first half of 2023 was due to investments in organizational structure and the implementation of various strategic initiatives.
Segment operating income
Segment operating income was $16.2 million in the six months ended June 30, 2023, an increase of $4.4 million as compared to the six months ended June 30, 2022, based on the factors noted above.
Arnold
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| | Three months ended | | Six months ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
Net sales | | $ | 40,138 | | | 100.0 | % | | $ | 38,777 | | | 100.0 | % | | $ | 80,228 | | | 100.0 | % | | $ | 76,942 | | | 100.0 | % |
Gross profit | | $ | 12,453 | | | 31.0 | % | | $ | 12,275 | | | 31.7 | % | | $ | 24,494 | | | 30.5 | % | | $ | 22,257 | | | 28.9 | % |
SG&A | | $ | 6,090 | | | 15.2 | % | | $ | 6,199 | | | 16.0 | % | | $ | 12,342 | | | 15.4 | % | | $ | 11,822 | | | 15.4 | % |
Segment operating income | | $ | 5,613 | | | 14.0 | % | | $ | 5,325 | | | 13.7 | % | | $ | 10,651 | | | 13.3 | % | | $ | 8,613 | | | 11.2 | % |
Three months ended June 30, 2023 compared to three months ended June 30, 2022
Net sales
Net sales for the three months ended June 30, 2023 were approximately $40.1 million, an increase of $1.4 million compared to the same period in 2022. International sales were $12.2 million in the three months ended June 30, 2023 and $11.3 millionin the three months ended June 30, 2022. The increase in net sales is primarily a result of increased demand in several markets including aerospace and defense, and industrial.
Gross profit
Gross profit for the three months ended June 30, 2023 was approximately $12.5 million compared to approximately $12.3 million in the same period of 2022. Gross profit as a percentage of net sales decreased to 31.0% for the quarter ended June 30, 2023 from 31.7% in the quarter ended June 30, 2022 principally due to product mix and higher staffing related costs.
Selling, general and administrative expense
Selling, general and administrative expense in the three months ended June 30, 2023 was $6.1 million, a decrease in expense of approximately $0.1 millioncompared to $6.2 million for the three months ended June 30, 2022. Selling, general and administrative expense was 15.2% of net sales in the three months ended June 30, 2023 and 16.0% in the three months ended June 30, 2022.
Segment operating income
Segment operating income for the three months ended June 30, 2023 was approximately $5.6 million, an increase of $0.3 million when compared to the same period in 2022, as a result of the factors noted above.
Six Months ended June 30, 2023 compared to six months ended June 30, 2022
Net sales
Net sales for the six months ended June 30, 2023 were approximately $80.2 million, an increase of $3.3 million compared to the same period in 2022. International sales were $25.7 million in the six months ended June 30, 2023 and $23.3 millionin the six months ended June 30, 2022. The increase in net sales is primarily a result of increased demand in several markets including aerospace and defense, and industrial.
Gross profit
Gross profit for the six months ended June 30, 2023 was approximately $24.5 million compared to approximately $22.3 million in the same period of 2022. Gross profit as a percentage of net sales increased to 30.5% for the six months ended June 30, 2023 from 28.9% in the six months ended June 30, 2022 principally due to increased volume, product mix and operational improvements.
Selling, general and administrative expense
Selling, general and administrative expense in the six months ended June 30, 2023 was $12.3 million, an increase in expense of approximately $0.5 millioncompared to $11.8 million for the six months ended June 30, 2022. Selling, general and administrative expense was 15.4% of net sales in both the six months ended June 30, 2023 and the six months ended June 30, 2022. The increase in selling general and administrative expense was due to increased staffing related costs and increased travel and legal expenses.
Segment operating income
Segment operating income for the six months ended June 30, 2023 was approximately $10.7 million, an increase of $2.0 million when compared to the same period in 2022, as a result of the factors noted above.
Sterno
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| | Three months ended | | Six months ended |
| | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
Net sales | | $ | 74,615 | | | 100.0 | % | | $ | 84,189 | | | 100.0 | % | | $ | 149,634 | | | 100.0 | % | | $ | 161,109 | | | 100.0 | % |
Gross profit | | $ | 19,479 | | | 26.1 | % | | $ | 20,101 | | | 23.9 | % | | $ | 36,039 | | | 24.1 | % | | $ | 34,597 | | | 21.5 | % |
SG&A | | $ | 8,154 | | | 10.9 | % | | $ | 7,880 | | | 9.4 | % | | $ | 15,984 | | | 10.7 | % | | $ | 15,074 | | | 9.4 | % |
Segment operating income | | $ | 7,088 | | | 9.5 | % | | $ | 7,954 | | | 9.4 | % | | $ | 11,581 | | | 7.7 | % | | $ | 10,988 | | | 6.8 | % |
Three months ended June 30, 2023 compared to three months ended June 30, 2022
Net sales
Net sales for the three months ended June 30, 2023 were approximately $74.6 million, a decrease of $9.6 million, or 11.4%, compared to the same period in 2022. The net sales variance reflects lower sales at Rimports due to changes in consumer discretionary buying behaviors as a result of inflationary pressures, partially offset by stronger sales at Sterno Products with increased spending in travel, entertainment, weddings and conventions.
Gross profit
Gross profit as a percentage of net sales increased from 23.9% for the three months ended June 30, 2022 to 26.1% for the three months ended June 30, 2023. The increase in gross profit percentage in the second quarter of 2023 as compared to the second quarter of 2022 was primarily attributable to favorable labor, overhead, and freight costs across the businesses, the effect of a price increase at Sterno Products and the mix of product sales.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended June 30, 2023 was approximately $8.2 million as compared to $7.9 million for the three months ended June 30, 2022, an increase of $0.3 million reflecting an increase in marketing related salaries and promotional activity for both divisions of the company in the current period. Selling, general and administrative expense represented 14.2%10.9% of net sales for the three months ended SeptemberJune 30, 2017 as compared to 15.4% of net sales for the same period in 2016. The decrease in selling, general2023 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 operations9.4% for the three months ended SeptemberJune 30, 20172022.
Segment operating income
Segment operating income for the three months ended June 30, 2023 was approximately $4.4$7.1 million, a decrease of $1.1$0.9 million when compared to the same period in 2016, as a result of those factors described above.
Ninethree months ended SeptemberJune 30, 20172022 based on the factors noted above.
Six Months ended June 30, 2023 compared to ninesix months ended SeptemberJune 30, 20162022
Net sales
Net sales for the ninesix months ended SeptemberJune 30, 20172023 were approximately $163.1$149.6 million, an increasea decrease of $6.4$11.5 million, or 4.1%or 7.1%, compared to the same period in 2016. 2022. The increase in net sales isvariance reflects lower sales at Rimports due to changes in consumer discretionary buying behaviors as a result of the acquisition of Sterno Home in January 2016,inflationary pressures, partially offset by strong sales shortfall at Sterno Home's candle division due to reduced demandProducts with increased spending in travel, entertainment, weddings and non-repeating orders. Sterno Home had net sales of $9.0 million in the period prior to acquisition in January 2016.conventions.
Gross profit
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 net sales decreasedincreased from 27.4%21.5% for the ninesix months ended SeptemberJune 30, 20162022 to 26.4%24.1% for the same periodsix months ended SeptemberJune 30, 2017.2023. The decreaseincrease in gross margin duringprofit percentage in the nine months ended September 30, 2017first half of 2023 as compared to the first half of 2022 was primarily reflects anattributable to favorable labor, overhead, and freight costs across the businesses and the effect of a price increase in chemical material costs.at Sterno Products.
Selling, general and administrative expense
Selling, general and administrative expense for the ninesix months ended SeptemberJune 30, 2017 and 20162023 was approximately $23.9$16.0 million as compared to $15.1 million for the six months ended June 30, 2022, an increase of $0.9 million reflecting an increase in marketing related salaries and $23.6 million, respectively. promotional activity for both divisions of the company in the current period. Selling, generalgeneral and administrative expense represented 14.6%10.7% of net sales for the ninesix months ended SeptemberJune 30, 2017 as compared to 15.0% of net sales2023 and 9.4% for the same period in 2016. The decrease as a percentage of net sales during the ninesix months ended SeptemberJune 30, 2017 as2022.
Segment operating income
Segment operating income for the six months ended June 30, 2023 was approximately $11.6 million, an increase of $0.6 million 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 ninesix months ended SeptemberJune 30, 2017 was approximately $13.4 million, a decrease of $0.7 million when compared to2022 based on the same period in 2016, as a result of those factors describednoted above.
Liquidity and Capital Resources
We generate cash primarily from the operations of our subsidiaries, and we have the ability to borrow under our 2022 Credit Facility to fund our operating, investing and financing activities. In January 2023, the Company's Board of Directors approved a share repurchase program authorizing the Company to repurchase, through December 31, 2023, up to $50 million of its outstanding common shares. In 2021, we filed a prospectus supplement pursuant to which we may, but we have no obligation to, issue and sell up to $500 million of the common shares of the Trust in amounts and at times to be determined by us. Actual sales will depend on a variety of factors to be determined by us from time to time, including, market conditions, the trading price of Trust common shares and determinations by us regarding appropriate sources of funding.
Liquidity
Our liquidity requirements primarily relate to our debt service requirements, payments of our common and preferred share distributions, management fees paid to our Manager, working capital needs and purchase commitments at our subsidiaries. As of June 30, 2023, we had $1,000.0 million of indebtedness associated with our 5.250% 2029 Notes, $300 million of indebtedness associated with our 5.000% 2032 Notes, $390.0 million outstanding on our 2022 Term Loan, and $92.0 million outstanding on our 2022 Revolving Credit Facility. Only our 2022 Term Loan has required principal payments. Long-term debt liquidity requirements consist of the payment in full of our Notes upon their respective maturity dates, amounts outstanding under our 2022 Revolving Credit Facility upon its maturity date, and principal payments under our 2022 Term Loan. The 2022 Term Loan requires quarterly payments ranging from $2.5 million to $7.5 million, commencing September 30, 2022, with a final payment of all remaining principal and interest due on July 12, 2027, which is the 2022 Term Loan’s maturity date. At June 30, 2023, approximately 27% of our outstanding debt was subject to interest rate changes.
At SeptemberJune 30, 2017,2023, we had approximately $41.5$67.4 million of cash and cash equivalents on hand, an increase of $1.7$9.5 million as compared to the year ended December 31, 2016. The increase in cash is due primarily to the sale of our remaining shares of our FOX investment in the first quarter of 2017, which resulted in net proceeds of $136.1 million, and the issuance of preferred shares in the second quarter of 2017, offset by our acquisition of Crosman and our common share distributions.2022. 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.
Our availability under our 2022 Revolving Credit Facility at June 30, 2023 was $505.8 million. The change in cash and cash equivalents for the six months ended June 30, 2023 and 2022 is as follows:
|
| | | | | | | | |
| | 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:
| | | | | | | | | | | | | | |
| | Six months ended |
(in thousands) | | June 30, 2023 | | June 30, 2022 |
Cash provided by (used in) operating activities | | $ | 37,239 | | | $ | (35,337) | |
| | | | |
For the ninesix months ended SeptemberJune 30, 2017,2023, cash flows provided by operating activities totaled approximately $59.2$37.2 million, which represents a $1.4$72.6 million decrease in cash use compared to cash provided byused in operating activities of $60.6$35.3 million during the nine monthsix-month period ended SeptemberJune 30, 2016 (from both continuing and discontinued operations). This decrease is principally the result of changes in cash used for working capital and non-cash charges in the nine months ended September 30, 2017 as compared to the same period in 2016, primarily as a result of the 5.11 acquisition, which occurred in the third quarter of 2016, and the effect of the cash flows from add-on acquisitions completed in 2016.2022. Cash used in operating activities for working capital for the ninesix months ended SeptemberJune 30, 20172023 was $24.3$65.2 million, as compared to cash used in operating activities for working capital of $5.0$159.2 million for the ninesix months ended SeptemberJune 30, 2016.2022. We typically have a higher usage of cash for working capital in the first half of the year as most of our subsidiaries will build up inventories after the fourth quarter. In the fourth quarter of 2021 and continuing into 2022, several of our subsidiary businesses increased inventory levels to combat supply chain issues given longer lead times leading to higher use of working capital for inventory in the prior year. We believe that the use of working capital in the first half of 2023 reflects a more normalized use of cash by our businesses as supply chains have normalized over the past year. The increase was primarily due toin cash used in operating activities for inventory by our branded consumer businesses during working capital in the first half of 2022 also reflects the acquisition of Lugano in
the third quarter.quarter of the prior year. Lugano has used significant cash to build inventory to support its sales growth strategy.
Investing Activities:
| | | | | | | | | | | | | | |
| | Six months ended |
(in thousands) | | June 30, 2023 | | June 30, 2022 |
Cash provided by (used in) investing activities | | $ | 117,829 | | | $ | (22,238) | |
| | | | |
Cash flows used inprovided by investing activities for the ninesix months ended SeptemberJune 30, 20172023 totaled approximately $63.0$117.8 million, compared to cash used in investing activities of $417.3$22.2 million in the same period of 2016.2022. In the current year, weinvesting activities reflects the sale of Advanced Circuits and the proceeds received approximately $136.1 million related to the sale, and an add-on acquisition at Marucci in the second quarter of our remaining investment in FOX, offset by cash used for our Crosman acquisition and add-on acquisitions at our Clean Earth, Crosman and Sterno businesses ($164.7 million in total) and capital expenditures ($31.0 million).2022. Capital expenditures inspend increased $7.1 million during the ninesix months ended SeptemberJune 30, 2017 increased approximately $15.4 million2023 as compared to the prior year, duesix months ended June 30, 2022, with $31.5 million in capital expenditures in 2023 and $24.4 million in capital expenditures in 2022. The increase in capital expenditures is primarily to expendituressupport the retail store growth at ourboth 5.11 business.and Lugano. We expect capital expenditures for the full year of 20172023 to be approximately $42between approximately $60 million to $47$70 million. The 2016 investing activities reflect the acquisition 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 of our FOX shares of $47.7 million.
Financing Activities:
| | | | | | | | | | | | | | |
| | Six months ended |
(in thousands) | | June 30, 2023 | | June 30, 2022 |
Cash provided by (used in) financing activities | | $ | (149,619) | | | $ | 3,597 | |
| | | | |
Cash flows provided byused in financing activities totaled approximately $7.9$149.6 million during the ninesix months ended SeptemberJune 30, 20172023 compared to cash flows provided by financing activities of $300.4$3.6 million during the ninesix months ended SeptemberJune 30, 2016.2022. Financing activities in the current year reflects $5.9 million in purchases under our share repurchase program, while financing activities in the first six months of 2022 reflects $62.2 million of Trust common shares issued under our at-the market share offering program. In the current year, we paid back $68.0 million, net, against our 2022 Credit Facility. Financing activities in both periods reflect the payment of our quarterly distribution ($64.7 million in 2017common and $58.6 million in 2016), activity on our credit facilitypreferred share distributions, and current period financing cash flows reflect the payment of athe profit allocation related tofrom the sale of FOX shares ($39.2 million in 2017 and $16.8 million in 2016). InAdvanced Circuits to the nine months ended September 30, 2017, activity on 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.Allocation Interest Holders.
Intercompany Debt
A component of our acquisition financing strategy that we utilize in acquiring the subsidiary 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 manageour subsidiaries 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 subsidiary businesses has a scheduled maturity and each subsidiary 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 businessessubsidiaries have paid down their respective intercompany debt balances through the cash flow generated by these businessessubsidiaries and we have recapitalized, and expect to continue to recapitalize, these businessessubsidiaries 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 revolvingapplicable 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.
In February 2022, we completed a recapitalization at Ergobaby whereby the LLC entered into an amendment to the intercompany loan agreement with Ergobaby (the "Ergobaby Loan Agreement"). The Ergobaby Loan Agreement was amended to provide for additional term loan borrowings of $61.5 million to fund a distribution to shareholders. The LLC owned 81.6% of the outstanding shares of Ergobaby on the date of the distribution and received $50.2 million. The remaining amount of the distribution was paid to minority shareholders.
As a resultIn the second quarter of significant2023, we amended the Marucci intercompany credit agreement to increase the borrowing availability under their credit agreement to allow for the financing of an add-on acquisition, and we amended the Velocity intercompany credit agreement to extend the term of the facility and to increase the borrowing availability under the facility. In the second quarter of 2023 and the fourth quarter of 2022, we amended the Lugano intercompany credit agreement to increase the borrowing availability under their credit agreement to allow Lugano
to continue to expand their operations. In the first quarter of 2022, we amended the 5.11 and Lugano intercompany credit agreements. The 5.11 amendment increased the capital expenditure allowable under the credit agreement to account for additional growth capital expenditure opportunities primarily related to retail expansion, and amended the financial covenants to reflect the increased allowable expenditure. The Lugano amendment increased the amount available under the revolving credit facility to permit additional investment in operational improvements to enhance its competitive position, including planned capital expendituresto reposition Arnold for future growth, we have granted Arnold a waiver for certaininventory, and amended the financial covenants to reflect the increase in the revolving credit facility. We amended the Lugano intercompany credit agreement again in the second quarter of 2022 to increase the amount in available under the revolving credit facility to permit additional investment in inventory, and amended the financial covenants to reflect the increase in the revolving credit facility. We amended the Velocity intercompany credit agreement in the third quarter of 2022 to increase the amount of the Velocity term loan to allow for the financing of an add-on acquisition.
All of our subsidiaries were in compliance with the financial covenants included within their intercompany debt agreement effective the quarter endedcredit arrangements at June 30, 2017 through December 31, 2017. Additionally, due to significant capital expenditures related to2023.
All intercompany loans eliminate in consolidation and are not reflected in 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 ended 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.
consolidated balance sheet. As of SeptemberJune 30, 2017,2023, we had the following outstanding loans due from each of our businesses:subsidiary businesses (in thousands):
|
| | | | |
(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 |
|
| | | | | | | | |
Subsidiary | | Intercompany loan |
5.11 | | $ | 212,435 | |
BOA | | 62,420 | |
Ergobaby | | 85,625 | |
Lugano | | 313,648 | |
Marucci | | 83,894 | |
PrimaLoft | | 160,000 | |
Velocity Outdoor | | 125,012 | |
Altor | | 97,893 | |
Arnold | | 64,297 | |
Sterno | | 144,736 | |
Total intercompany debt | | $ | 1,349,960 | |
Corporate and eliminations | | (1,349,960) | |
Total | | $ | — | |
Our primary source of cash is from the receipt of interest and principal on the outstanding loans to our businesses.subsidiaries. Accordingly, we are dependent upon the earnings of and cash flow from these businesses, which are available for (i) operating expenses; (ii) payment of principal and interest under our 2014 Credit Facility;applicable credit 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.
20142022 Credit Facility
On June 6, 2014,July 12, 2022, we entered into a new credit facility, the 2014Third Amended and Restated Credit Agreement (the "2022 Credit Facility") to amend and restate the 2021 Credit Facility. The 2022 Credit Facility which replaced our then existing 2011 Credit Facility entered into in October 2011. On August 31, 2016, we entered into an Incremental Facility Amendment to the 2014 Credit Agreement. The Incremental Facility Amendment provided an increase to the 2014 Revolving 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 up to a maximum aggregate amount of $550$600 million (the "2022 Revolving Credit Facility") and maturesalso permits the LLC, prior to the applicable maturity date, to increase the revolving loan commitment and/or obtain term loans in June 2019, (ii)an aggregate amount of up to $250 million, subject to certain restrictions and conditions. All amounts outstanding under the 2022 Revolving Credit Facility will become due on July 12, 2027, which is the maturity date of loans advanced under the 2022 Revolving Credit Facility. The 2022 Credit Facility also provides for a $325$400 million term loan and (iii) a $250 million incremental term loan. Our 2014(the “2022 Term Loan and 2016 IncrementalLoan”). The 2022 Term Loan requires quarterly payments ranging from $2.5 million to $7.5 million, commencing September 30, 2022, with a final payment of all remaining principal and interest due on July 12, 2027, which is 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.)2022 Term Loan’s maturity date.
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$505.8 million in net availability under the 20142022 Revolving Credit Facility at SeptemberJune 30, 2017.2023. The outstanding borrowings under the 20142022 Revolving Credit Facility includes $1.3include $2.2 million at September 30, 2017 of outstanding letters of credit.credit at June 30, 2023, which are not reflected on our balance sheet.
2021 Credit Facility
On March 23, 2021, we entered into a Second Amended and Restated Credit Agreement to amend and restate the 2018 Credit Facility. The 2021 Credit Facility provided for revolving loans, swing line loans and letters of credit up to a maximum aggregate amount of $600 million and also permits the LLC, prior to the applicable maturity date, to increase the revolving loan commitment and/or obtain term loans in an aggregate amount of up to $250 million, subject to certain restrictions and conditions. The LLC repaid the outstanding amounts under the 2021 Credit Facility in the third quarter of 2022 in connection with entering into the 2022 Credit Facility.
Senior Notes
2032 Notes
On November 17, 2021, we consummated the issuance and sale of $300 million aggregate principal amount of our 5.000% Senior Notes due 2032 (the "2032 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 2032 Notes were issued pursuant to an indenture, dated as of November 17, 2021 (the “2032 Notes Indenture”), between the LLC and U.S. Bank National Association, as trustee. The 2032 Notes bear interest at the rate of 5.000% per annum and will mature on January 15, 2032. Interest on the 2032 Notes is payable in cash on July 15th and January 15th of each year. The 2032 Notes are general unsecured obligations of the LLC and are not guaranteed by our subsidiaries. The proceeds from the sale of the 2032 Notes were used to repay debt outstanding under the 2021 Credit Facility.
2029 Notes
On March 23, 2021, we consummated the issuance and sale of $1,000 million aggregate principal amount of our 5.250% Senior Notes due 2029 (the “2029 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 2029 Notes were issued pursuant to an indenture, dated as of March 23, 2021 (the “2029 Notes Indenture”), between the LLC and U.S. Bank National Association, as trustee. The 2029 Notes bear interest at the rate of 5.250% per annum and will mature on April 15, 2029. Interest on the 2029 Notes is payable in cash on April 15th and October 15th of each year. The 2029 Notes are general unsecured obligations of the LLC and are not guaranteed by our subsidiaries.
The following table reflects required and actual financial ratios as of SeptemberJune 30, 20172023 included as part of the affirmative covenants in our 20142022 Credit Facility:
| | | | | | | | | | | | | | |
Description of Required Covenant Ratio | | Covenant Ratio Requirement | | Actual Ratio |
| | | | |
Description of Required Covenant Ratio | | Covenant Ratio Requirement | | Actual Ratio |
Consolidated Fixed Charge Coverage Ratio | | greaterGreater than or equal to 1.50:1.0 | | 3.12:2.28:1.0 |
Total Debt to EBITDAConsolidated Senior Secured Leverage Ratio | | lessLess than or equal to 3.50:1.0 | | 2.76:1.03:1.0 |
Consolidated Total Leverage Ratio | | Less than or equal to 5.50:1.0 | | 4.08:1.0 |
We intend to use the availabilityexercised an option under our 2014 Credit Facility and cash on hand to pursue acquisitions of additional businesses to the extent permitted under our 20142022 Credit Facility to fund distributionsincrease our Consolidated Total Leverage Ratio to 5.75:1.0 as of December 31, 2022. This increase declined to 5.50 on June 30, 2023, and declines to provide for other working capital needs.5.00 on December 31, 2023.
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):
| | | | | | | | | | | |
| Six months ended June 30, |
| 2023 | | 2022 |
Interest on credit facilities | $ | 17,854 | | | $ | 40 | |
Interest on Senior Notes | 33,750 | | | 33,750 | |
Unused fee on Revolving Credit Facility | 990 | | | 1,050 | |
| | | |
Other interest expense | 216 | | | 124 | |
Interest income | (15) | | | (26) | |
Interest expense, net | $ | 52,795 | | | $ | 34,938 | |
|
| | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
Interest on credit facilities | $ | 18,008 |
| | $ | 12,612 |
|
Unused fee on Revolving Credit Facility | 2,143 |
| | 1,356 |
|
Amortization of original issue discount | 781 |
| | 536 |
|
Unrealized loss on interest rate derivatives (1) | 1,178 |
| | 8,322 |
|
Letter of credit fees | 63 |
| | 79 |
|
Other | 414 |
| | 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 anThe following table provides the effective interest rate swap (the "New Swap") with a notional amount of $220 million effective April 1, 2016 through June 6, 2021. The agreement requires us to pay interest on the notional amount at the rate
of 2.97% in exchange for the three-month LIBOR rate. At September 30, 2017, the New Swap had a fair value loss of $8.8 million, reflecting the present value of future payments 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.Company’s outstanding debt at June 30, 2023 and December 31, 2022 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| Effective Interest Rate | | Amount | | Effective Interest Rate | | Amount |
2029 Senior Notes | 5.25% | | $ | 1,000,000 | | | 5.25% | | $ | 1,000,000 | |
2032 Senior Notes | 5.00% | | 300,000 | | | 5.00% | | 300,000 | |
2022 Term Loan | 7.10% | | 390,000 | | | 5.20% | | 395,000 | |
2022 Revolving Credit Facility | 7.17% | | 92,000 | | | 5.98% | | 155,000 | |
Unamortized debt issuance costs | | | (14,327) | | | | | (15,532) | |
Total debt outstanding | | | $ | 1,767,673 | | | | | $ | 1,834,468 | |
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:
|
| | | | | | |
| | 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 meantintended to be a substitute forreplace the presentation of financial results in accordance with U.S. GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.
The presentation of these non-GAAP financial measures supplements other metrics we use to internally evaluate our subsidiary businesses and facilitate the comparison of past and present operations.
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").
Adjusted Earnings.
Reconciliation of Net income (Loss)(loss) from continuing operations to EBITDA, and Adjusted EBITDA and Net income (loss) to Adjusted Earnings
EBITDA –EBITDA – EBITDA is calculated as net income (loss) from continuing operations before interest expense, income tax expense (benefit), loss on debt extinguishment, 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) managementintegration service fees, which reflect fees due quarterly to our Manager in connection with our Management Services Agreement ("MSA’), as well as Integration Services Fees paid by newly acquired companies;companies to the Manager for integration services performed during the first year of ownership; and (iv) impairment charges,items of other income or expense that are material to a subsidiary and non-recurring in nature.
Adjusted Earnings - Adjusted earnings is calculated as net income (loss) adjusted to include the cost of the distributions to preferred shareholders, and adjusted to exclude the impact of certain costs, expenses, gains and losses and other specified items the exclusion of which reflect write downsmanagement believes provides insight regarding our ongoing operating performance. Depending on the period presented, these adjusted measures exclude the impact of certain of the following items: gains (losses) and income (loss) from discontinued operations, income (loss) from noncontrolling interest, amortization expense, subsidiary stock compensation expense, acquisition-related expenses and items of other income or expense that may be material to goodwill or other intangible assets; (v) gains or losses recordeda subsidiary and non-recurring 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.nature.
We believe that EBITDA, Adjusted EBITDA and Adjusted EBITDAEarnings provide useful information to investors and reflect important financial measures as they excludethat are used by management in the effects of items which reflect the impact of long-term investment decisions, rather than the performance of near term operations. When compared to income (loss) from continuing operations these financial measures are limited in that they do not reflect the periodic costs of certain capital assets used in generating revenuesmonthly analysis of our businesses or the non-cash charges associated with impairments. Thisoperating results and in preparation of our annual budgets. We believe that investors’ understanding of our performance is enhanced by disclosing these performance measures as 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 subsidiary 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.Adjusted EBITDA and Adjusted Earnings provide useful information to investors and reflects 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) and net income (loss) from continuing operations, Adjusted Earnings and Adjusted EBITDA, respectively, are each limited in that they do not reflect the periodic costs of certain capital assets used in generating revenues of our subsidiary businesses or the non-cash charges associated with impairments, as well as certain cash charges. The presentation of Adjusted EBITDA allows investors to view the performance of our businesses in a manner similar to the methods used by us and the management of our subsidiaries, provides additional insight into our operating results and provides a measure for evaluating targeted businesses for acquisition. The presentation of Adjusted Earnings provides insight into our operating results and provides a measure for evaluating earnings from continuing operations available to common shareholders. EBITDA, Adjusted EBITDA and Adjusted Earnings 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) from continuing operations, which we consider to be the most comparable GAAP financial measure (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA |
Six months ended June 30, 2023 |
| Corporate | | 5.11 | | BOA | | Ergobaby | | Lugano | | Marucci Sports | | PrimaLoft | | Velocity Outdoor | | Altor | | Arnold | | Sterno | | Consolidated |
Net income (loss) from continuing operations | $ | (22,352) | | | $ | 6,016 | | | 10,894 | | | $ | (853) | | | $ | 16,884 | | | $ | 9,419 | | | $ | (607) | | | $ | (7,981) | | | $ | 7,202 | | | $ | 4,808 | | | $ | 2,464 | | | $ | 25,894 | |
Adjusted for: | | | | | | | | | | | | | | | | | | | | | | | |
Provision (benefit) for income taxes | — | | | 2,070 | | | 1,359 | | | (652) | | | 6,085 | | | 3,040 | | | (559) | | | (2,954) | | | 2,634 | | | 2,388 | | | 869 | | | 14,280 | |
Interest expense, net | 52,598 | | | (2) | | | (5) | | | — | | | 4 | | | 2 | | | (6) | | | 194 | | | — | | | 10 | | | — | | | 52,795 | |
Intercompany interest | (69,453) | | | 10,221 | | | 3,461 | | | 4,340 | | | 13,730 | | | 4,728 | | | 8,708 | | | 6,437 | | | 5,634 | | | 3,372 | | | 8,822 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | 594 | | | 13,293 | | | 11,506 | | | 4,079 | | | 4,890 | | | 6,455 | | | 10,723 | | | 6,751 | | | 8,343 | | | 4,122 | | | 10,032 | | | 80,788 | |
EBITDA | (38,613) | | | 31,598 | | | 27,215 | | | 6,914 | | | 41,593 | | | 23,644 | | | 18,259 | | | 2,447 | | | 23,813 | | | 14,700 | | | 22,187 | | | 173,757 | |
Other (income) expense | (128) | | | (201) | | | 180 | | | 29 | | | (76) | | | 29 | | | 139 | | | (754) | | | 563 | | | (9) | | | (798) | | | (1,026) | |
Noncontrolling shareholder compensation | — | | | 730 | | | 1,333 | | | 624 | | | 840 | | | 863 | | | (43) | | | 458 | | | 566 | | | 18 | | | 322 | | | 5,711 | |
Acquisition expenses | — | | | — | | | — | | | — | | | — | | | 364 | | | — | | | — | | | — | | | — | | | — | | | 364 | |
Integration services fee | — | | | — | | | — | | | — | | | — | | | — | | | 2,375 | | | — | | | — | | | — | | | — | | | 2,375 | |
Other | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 780 | | | 780 | |
Adjusted EBITDA | $ | (38,741) | | | $ | 32,127 | | | $ | 28,728 | | | $ | 7,567 | | | $ | 42,357 | | | $ | 24,900 | | | $ | 20,730 | | | $ | 2,151 | | | $ | 24,942 | | | $ | 14,709 | | | $ | 22,491 | | | $ | 181,961 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA |
Six months ended June 30, 2022 |
| Corporate | | 5.11 | | BOA | | Ergobaby | | Lugano | | Marucci Sports | | Velocity Outdoor | | Altor | | Arnold | | Sterno | | Consolidated |
Net income (loss) from continuing operations | $ | (24,771) | | | $ | 9,635 | | | $ | 28,187 | | | $ | 125 | | | $ | 13,776 | | | $ | 4,144 | | | $ | 3,147 | | | $ | 4,384 | | | $ | 3,742 | | | $ | 2,540 | | | $ | 44,909 | |
Adjusted for: | | | | | | | | | | | | | | | | | | | | | |
Provision (benefit) for income taxes | (4,338) | | | 3,093 | | | 5,043 | | | 842 | | | 4,697 | | | 1,212 | | | 956 | | | 2,102 | | | 2,231 | | | 270 | | | 16,108 | |
Interest expense, net | 34,834 | | | 10 | | | (12) | | | 2 | | | 9 | | | 10 | | | 72 | | | — | | | 13 | | | — | | | 34,938 | |
Intercompany interest | (39,735) | | | 5,998 | | | 3,826 | | | 2,263 | | | 4,578 | | | 2,837 | | | 3,990 | | | 5,023 | | | 2,545 | | | 8,675 | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | 637 | | | 11,038 | | | 10,768 | | | 4,028 | | | 5,302 | | | 7,054 | | | 6,561 | | | 8,130 | | | 4,129 | | | 10,203 | | | 67,850 | |
EBITDA | (33,373) | | | 29,774 | | | 47,812 | | | 7,260 | | | 28,362 | | | 15,257 | | | 14,726 | | | 19,639 | | | 12,660 | | | 21,688 | | | 163,805 | |
Other (income) expense | — | | | (616) | | | 95 | | | 4 | | | 2 | | | (1,828) | | | 183 | | | 109 | | | — | | | (722) | | | (2,773) | |
Noncontrolling shareholder compensation | — | | | 829 | | | 1,268 | | | 792 | | | 444 | | | 552 | | | 502 | | | 535 | | | 25 | | | 414 | | | 5,361 | |
Acquisition expenses | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 216 | | | — | | | — | | | 216 | |
Integration services fee | — | | | — | | | — | | | — | | | 1,125 | | | — | | | — | | | — | | | — | | | — | | | 1,125 | |
Other | — | | | — | | | — | | | 250 | | | — | | | 1,802 | | | | | — | | | — | | | 777 | | | 2,829 | |
Adjusted EBITDA | $ | (33,373) | | | $ | 29,987 | | | $ | 49,175 | | | $ | 8,306 | | | $ | 29,933 | | | $ | 15,783 | | | $ | 15,411 | | | $ | 20,499 | | | $ | 12,685 | | | $ | 22,157 | | | $ | 170,563 | |
Reconciliation of Net income (loss) to Adjusted Earnings and Adjusted EBITDA
The following table reconciles Adjusted Earnings to net income (loss), which we consider to be the most comparable GAAP financial measure, and Adjusted Earnings to Adjusted EBITDA (in thousands):
| | | | | | | | | | | | | | | | | |
| | | Six months ended June 30, |
| | | | | 2023 | | 2022 |
Net income | | | | | $ | 126,724 | | | $ | 60,697 | |
Income (loss) from discontinued operations, net of tax | | | | | (1,391) | | | 10,374 | |
Gain on sale of discontinued operations, net of tax | | | | | 102,221 | | | 5,414 | |
Net income from continuing operations | | | | | $ | 25,894 | | | $ | 44,909 | |
Less: income from continuing operations attributable to noncontrolling interest | | | | | 8,498 | | | 8,572 | |
Net income attributable to Holdings - continuing operations | | | | | $ | 17,396 | | | $ | 36,337 | |
Adjustments: | | | | | | | |
Distributions paid - preferred shares | | | | | (12,091) | | | (12,091) | |
Amortization expense - intangibles and inventory step-up | | | | | 54,185 | | | 45,837 | |
| | | | | | | |
Stock compensation | | | | | 5,711 | | | 5,361 | |
Acquisition expenses | | | | | 364 | | | 216 | |
Integration Services Fee | | | | | 2,375 | | | 1,125 | |
Unrealized corporate tax effect | | | | | — | | | (4,338) | |
Other | | | | | 780 | | | 2,829 | |
Adjusted Earnings | | | | | $ | 68,720 | | | $ | 75,276 | |
Plus (less): | | | | | | | |
Depreciation expense | | | | | 24,574 | | | 20,282 | |
Income tax provision | | | | | 14,280 | | | 16,108 | |
Unrealized corporate tax effect | | | | | — | | | 4,338 | |
Interest expense | | | | | 52,795 | | | 34,938 | |
Amortization of debt issuance costs | | | | | 2,029 | | | 1,731 | |
Income from continuing operations attributable to noncontrolling interest | | | | | 8,498 | | | 8,572 | |
Distributions paid - preferred shares | | | | | 12,091 | | | 12,091 | |
Other (income) expense | | | | | (1,026) | | | (2,773) | |
Adjusted EBITDA | | | | | $ | 181,961 | | | $ | 170,563 | |
Adjusted EBITDA
Nine months ended September 30, 2017
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, net | 22,154 |
| | 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 amortization | 1,392 |
| | 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 investment | 5,620 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,620 |
|
Gain on foreign currency transaction and other | (3,583 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,583 | ) |
Management fees | 20,881 |
| | 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, 2016
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, net | 22,840 |
| | 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 amortization | 667 |
| | 5,237 |
| | | 6,306 |
| | 2,099 |
| | 5,256 |
| | 2,938 |
| | 7,035 |
| | 16,380 |
| | 8,617 |
| | 54,535 |
|
EBITDA | 36,698 |
| | 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 expenses | 98 |
| | 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 fees | 18,800 |
| | 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 |
|
(1) Net income (loss) does not include income from discontinued operations for the nine months ended September 30, 2016.
(2) As a result 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 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, 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 amortization | 88,659 |
| | 53,972 |
|
Impairment expense/ loss on disposal of assets | 8,864 |
| | 7,214 |
|
Gain on sale of businesses | (340 | ) | | (2,134 | ) |
Amortization of debt issuance costs and original issue discount | 3,721 |
| | 2,363 |
|
Unrealized loss on interest rate hedges | 1,178 |
| | 8,322 |
|
Loss (gain) on equity method investment | 5,620 |
| | (58,680 | ) |
Noncontrolling shareholder charges | 4,952 |
| | 3,012 |
|
Excess tax benefit on stock compensation | (417 | ) | | (366 | ) |
Provision for loss on receivables | 4,310 |
| | 59 |
|
Deferred taxes | (17,937 | ) | | (4,280 | ) |
Other | 494 |
| | 349 |
|
Changes in operating assets and liabilities | (24,349 | ) | | (3,791 | ) |
Net cash provided by operating activities | 59,236 |
| | 60,594 |
|
Plus: |
| |
|
Unused fee on revolving credit facility | 2,143 |
| | 1,355 |
|
Integration services fee (1) | 2,708 |
| | 792 |
|
Successful acquisition costs | 1,836 |
| | 3,888 |
|
Excess tax benefit on stock compensation | 417 |
| | 366 |
|
Changes in operating assets and liabilities | 24,349 |
| | 3,791 |
|
Other | — |
| | 245 |
|
Less: |
| |
|
Payments on swap | 3,050 |
| | 3,114 |
|
Maintenance capital expenditures: (2) |
| |
|
Compass Group Diversified Holdings LLC | — |
| | — |
|
5.11 Tactical | 2,914 |
| | 540 |
|
Advanced Circuits | 219 |
| | 2,845 |
|
Arnold | 2,548 |
| | 1,625 |
|
Clean Earth | 3,591 |
| | 4,504 |
|
Crosman | 968 |
| | — |
|
Ergobaby | 788 |
| | 441 |
|
Liberty | 389 |
| | 850 |
|
Manitoba Harvest | 625 |
| | 1,146 |
|
Sterno Products | 1,373 |
| | 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 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) 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 million for the nine months ended September 30, 2017 and $1.6 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. |
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 eachhave produced the highest net sales in our fiscal year, reflecting the hunting and holiday seasons. Earnings from Clean Earth are typically lower during the winter monthshowever, due to the limitsvarious acquisitions since 2020, there is generally less seasonality in our net sales on outdoor construction and development activity because of the colder weather in the Northeastern United States. Sterno Products typicallya consolidated basis than there has higher sales in the second and fourth quarter of each year, reflecting the outdoor summer and holiday seasons, respectively.
been historically.
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 LLC in FOXexchange for a management fee paid quarterly and equal to 0.5% of the Company's adjusted net assets, as defined in the MSA.
InDuring 2022, CGM entered into a waiver of the MSA for the period through June 30, 2023 to receive a 1% annual management fee related to PrimaLoft, rather than the 2% called for under the MSA, which resulted in a lower management fee at March 2017, FOX closed on31, and June 30, 2023 than would normally have been due. At June 30, 2022 and March
31, 2022, CGM entered into a secondary offeringwaiver to exclude cash balances held at the LLC from the calculation of the management fee.
For the three and six months ended June 30, 2023 and 2022, the Company incurred the following management fees to CGM, by entity:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six Months ended June 30, |
(in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
5.11 | $ | 250 | | | $ | 250 | | | $ | 500 | | | $ | 500 | |
BOA | 250 | | 250 | | | 500 | | | 500 | |
Ergobaby | 125 | | 125 | | | 250 | | | 250 | |
Lugano | 188 | | 188 | | | 375 | | | 375 | |
Marucci | 125 | | 125 | | | 250 | | | 250 | |
PrimaLoft | 250 | | — | | | 500 | | | — | |
Velocity | 125 | | 125 | | | 250 | | | 250 | |
Altor | 188 | | 188 | | | 375 | | | 375 | |
Arnold Magnetics | 125 | | 125 | | | 250 | | | 250 | |
Sterno | 125 | | 125 | | | 250 | | | 250 | |
Corporate | 15,169 | | | 13,400 | | | 29,815 | | | 26,337 | |
| $ | 16,920 | | | $ | 14,901 | | | $ | 33,315 | | | $ | 29,337 | |
Integration Services Agreements
PrimaLoft, which was acquired in July 2022, entered into an Integration Services Agreement ("ISA") with CGM whereby PrimaLoft paid CGM an integration services fee of $4.8 million quarterly over a twelve-month period ended June 30, 2023. Lugano, which was acquired in September 2021, entered into an ISA with CGM whereby Lugano paid CGM an integration services fee of $2.3 million quarterly over a twelve-month period ended September 30, 2022. Under the ISAs, CGM provides 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 other subsidiaries. Integration services fees are recorded as selling, general and administrative expense in the consolidated statement of operations.
Allocation Interests
The Allocation Interests represent the original equity interest in the Company. The holders of the Allocation Interests (“Holders”), through which we sold our remaining 5,108,718 shares in FOX for total net proceedsSostratus LLC, are entitled to receive distributions pursuant to a profit allocation formula upon the occurrence of $136.1 million, aftercertain events. The distributions of the underwriter's discountprofit allocation are paid upon the occurrence of $8.9 million. Subsequent to the sale of FOX shares in March 2017, we no longer hold an ownership interest in FOX.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 dividends declared on Allocation Interests to stockholders’ equity when they are approved by the Company’s board of directors. The sale of FOX sharesAdvanced Circuits in a secondary offering in March 2017 qualified asFebruary 2023 represented a Sale Event underand the Company's LLC Agreement. Duringboard of director's approved a distribution of $24.4 million in April 2023, subsequent to the second quarterend of 2017, ourthe first quarter. In addition, the Company's board of directors declaredapproved a distribution of $2.1 million related to various sale proceeds received related to previous Sale Events. These distributions were paid to the Allocation Member in connection with the FOX Sale Event of $25.8 million. The profit allocation payment was made during the quarter ended June 30, 2017.
The following table reflects the year 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 on the investment in FOX asHolders of the date of the FOX secondary offering through which we sold our remaining sharesAllocation Interests in FOX.
April 2023.
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. During5.11 purchased approximately $0.4 million and $1.0 million during the three and ninesix months ended SeptemberJune 30, 2017, 5.11 purchased approximately $1.02023, respectively and $0.5 million and $4.7$0.8 million during the three and six months ended June 30, 2022, respectively in inventory from the vendor.
BOA
Related Party Vendor Purchases - A contract manufacturer used by BOA as the primary supplier of molded injection parts is a noncontrolling shareholder of BOA. BOA purchased approximately $10.7 million and $20.4 million from this vendor.supplier during the three and six months ended June 30, 2023, respectively and $15.9 million and $31.1 million during the three and six months ended and June 30, 2022, respectively.
Ergobaby
Recapitalization - In February 2022, the Company completed a recapitalization of Ergobaby whereby the LLC entered into an amendment to the intercompany loan agreement with Ergobaby (the "Ergo Loan Agreement"). The Ergo Loan Agreement was amended to provide for additional loan borrowings of $61.5 million to fund a distribution to shareholders. The LLC owned 81.6% of the outstanding shares of Ergobaby on the date of the distribution and received $50.2 million. The remaining amount of the distribution was paid to minority shareholders.
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, 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:
|
| | | | | | | | | | | | | | | | | | | |
(in thousands) | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years |
Long-term debt obligations (1) | $ | 688,792 |
| | $ | 21,231 |
| | $ | 89,699 |
| | $ | 577,862 |
| | $ | — |
|
Operating lease obligations (2) | 92,734 |
| | 12,231 |
| | 24,744 |
| | 17,333 |
| | 38,426 |
|
Purchase obligations (3) | 408,105 |
| | 237,110 |
| | 105,495 |
| | 65,500 |
| | — |
|
Total (4) | $ | 1,189,631 |
| | $ | 270,572 |
| | $ | 219,938 |
| | $ | 660,695 |
| | $ | 38,426 |
|
| |
(1)
| Reflects commitment fees and letter of credit fees under our 2014 Revolving Credit Facility and amounts due, together with interest on our 2014 Term Loan 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 Report on Form 10-K, for the year ended December 31, 2016,2022, as filed with the Securities and Exchange Commission ("SEC")SEC on March 2, 2017.1, 2023.
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 subsidiary 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.
2017 Annual Impairment Testing
At March 31, 2017, we determined that the Manitoba Harvest reporting unit required further quantitative testing (Step 1) because we could If qualitative factors are not concludesufficient 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 exceeds its carrying value based on qualitative factors alone. For the Step 1 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%. Results of the Step 1 quantitative testing of Manitoba Harvest indicated that the fair value of Manitoba Harvest exceeded its carrying value. For the reporting units that were tested qualitatively, 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 during the 2017 annual impairment testing for Manitoba Harvest. Subsequent to the annual impairment test,whereby 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 determined 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 estimatedestimate the fair value of the reporting unit using only an income approach wherebyor market approach, or a weighting of the two methods. Under the income approach, we estimate the fair value of aour reporting unit based on the present value of future cash flows. We do not believe thatCash 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 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 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 12.5% for PMAG, 12.0% for Flexmagrevenue and 13.0% for PTM. Resultsearnings 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 Step 1reporting unit using only the income approach. The valuation approaches are subject to key judgments and assumptions that are sensitive to change such as judgments and assumptions about appropriate sales growth rates, operating margins, weighted average cost of capital, and comparable company market multiples. When developing these key judgments and assumptions, we consider economic, operational and market conditions that could impact the fair value of the reporting unit. Estimates are inherently uncertain and represent only management’s reasonable expectations regarding future developments. These
estimates and the judgments and assumptions upon which the estimates are based will most likely differ from actual future results.
2023 Annual Impairment Testing - For our annual impairment testing for Arnold's Flexmag and PTMat March 31, 2023, we performed a qualitative assessment of our reporting units. The results of the qualitative analysis indicated that it was more-likely-than-not that the fair value of each of our reporting units except Velocity exceeded their carrying value. Based on our analysis, we determined that the Velocity operating segment required quantitative testing because we could not conclude that the fair value of this reporting unit significantly exceeded the carrying value based on qualitative factors alone.
We performed the quantitative tests of Velocity using an income approach to determine the fair value of the reporting unit. In developing the prospective financial information used in the income approach, we considered recent market conditions, taking into consideration the uncertainty associated with the current economic environment. The prospective financial information considers reporting unit specific facts and circumstances and is our best estimate of operational results and cash flows for the Velocity reporting unit as of the date of our impairment testing. The discount rate used in the income approach was 15.0%, and the results of the quantitative impairment testing indicated that the fair value of thesethe Velocity reporting unit exceeded the carrying value by approximately 21%. The prospective financial information that is used to determine the fair values of the Velocity reporting unit requires us to make assumptions regarding future operational results including revenue 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 unit that was tested quantitatively.
2022 Interim goodwill and indefinite lived intangible asset impairment testing - As a result of operating results below forecasts in the current period and expectations that macroeconomic conditions and decreases in consumer discretionary spending in the upcoming year will impact 2023 operating results, we determined that a triggering event had occurred at Ergobaby in the fourth quarter of 2022 and performed an interim impairment test of the Ergobaby goodwill and indefinite-lived tradename as of December 31, 2022. The Company used an income approach for the impairment test, whereby the Company estimated the fair value of the reporting unit based on the present value of expected future cash flows, including terminal value, and utilized a discount rate of 16.0%. The prospective financial information considers reporting unit specific facts and circumstances and was our best estimate of operational results and cash flows for Ergobaby as of the date of our impairment testing. The results of the quantitative impairment testing indicated that the fair value of the Ergobaby reporting unit did not exceed the carrying value. We recorded goodwill impairment expense of $20.6 million at December 31, 2022. For the indefinite lived tradename, the results of the quantitative testing indicated that the fair value exceeded the carrying value.
2022 Annual Impairment Testing - For our annual impairment testing at March 31, 2022, we performed a qualitative assessment of our reporting units. The results of the qualitative analysis indicated that it was more-likely-than-not that the fair value of each of our 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$57.0 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, 2017,2023, indicated that the fair value of the indefinite lived intangible assets exceeded their carrying value.
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, 2016.2022. 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, 2016,2022, as filed with the SEC on March 2, 2017.1, 2023.
ITEM 4. CONTROLS AND PROCEDURES
As required by Securities Exchange Act of 1934, as amended (the "Exchange Act") Rule 13a-15(b), Holdings’the Trust's Regular Trustees and the Company’sLLC’s management, including the Chief Executive Officer and Chief Financial Officer of the Company,LLC, conducted an evaluation of the effectiveness of Holdings’the Trust's and the Company’sLLC’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of SeptemberJune 30, 2017.2023. Based on that evaluation, the Holdings’Trust's Regular Trustees and the Chief Executive Officer and Chief Financial Officer of the CompanyLLC concluded that Holdings’the Trust's and the Company’sLLC’s disclosure controls and procedures were effective as of SeptemberJune 30, 2017.2023.
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.
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, 20162022, as filed with the SEC on March 2, 2017.1, 2023.
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 filed2022 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 June 30, 2023 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.operations, liquidity and 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, 2022.
As a manufacturer
ITEM 2. Unregistered Sales of recreational airguns, archery products, laser aiming devicesEquity Securities and related accessories, Crosman is involved in various litigation matters that occur inUse of Proceeds
Issuer Purchases of Equity Securities
The following table presents 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 atotal number of years later.
While Crosman maintains product liability insurance to insure against potential claims, there isshares of common stock purchased during the second quarter of 2023, the average price paid per share, the number of shares that were purchased as part of a risk such insurance may not be sufficient to cover all liabilities incurred in connection with such claimspublicly announced repurchase program, if any, and the financial consequences of these claims and lawsuits will have a material adverse effect on its business, financial condition, liquidity and results of operations.
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. Holdersapproximate dollar value of the Series A Preferred Shares will only receive distributionsmaximum number of shares that may yet be purchased under the share repurchase program:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
April 1 - April 30, 2023 | | 45,000 | | | $ | 18.79 | | | 45,000 | | | $ | 45,200,000 | |
May 1 - May 31, 2023 | | 25,000 | | | $ | 19.99 | | | 25,000 | | | $ | 44,700,000 | |
June 1 - June 30, 2023 | | 26,800 | | | $ | 20.06 | | | 26,800 | | | $ | 44,100,000 | |
Total | | 96,800 | | | $ | 19.44 | | | 96,800 | | | $ | 44,100,000 | |
(1)In January 2023, the Company's Board of Directors approved a share repurchase program authorizing the Company to repurchase, through December 31, 2023, up to $50.0 million of outstanding common shares of the Series A Preferred Shares when, as and if declared byTrust. All common shares repurchased during the boardsecond quarter of directors2023 were repurchased pursuant to this publicly-announced share repurchase program.
(2) As of June 30, 2023, the Company. Consequently, ifremaining authorization under 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.
publicly-announced share repurchase program was $44.1 million.
|
| | | | | | | |
ITEM 6.EXHIBITS |
| |
Exhibit Number | | Description |
| | |
10.1*31.1* | | |
| | |
12.1* | | |
| | |
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 |
| | |
104 | | Cover 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. |
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.
|
| | | | | | | | | | |
Date: August 2, 2023 | COMPASS DIVERSIFIED HOLDINGS |
| | |
| By: | | /s/ Ryan J. Faulkingham |
| | | Ryan J. Faulkingham |
| | | Regular Trustee |
Date: 11/8/2017
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.
|
| | | | | | | | | | |
Date: August 2, 2023 | 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* | | | Chief Financial Officer (Principal Financial and among Compass Group Diversified Holdings LLC, Bank of America, N.A., and the lenders theretoAccounting Officer) |
EXHIBIT INDEX
| | | | | | | | |
Exhibit Number | | Description |
12.1* | | |
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 |
| | |
104 | | Cover 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. |