UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2019~~March 31, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

COMPASS DIVERSIFIED HOLDINGS

(Exact name of registrant as specified in its charter)

COMPASS GROUP DIVERSIFIED HOLDINGS LLC

(Exact name of registrant as specified in its charter)

301 Riverside Avenue, Second Floor, Westport, CT 06880

(203) 221-1703

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Shares representing beneficial interests in Compass Diversified Holdings	CODI	New York Stock Exchange
Series A Preferred Shares representing Series A Trust Preferred Interest in Compass Diversified Holdings	CODI PR A	New York Stock Exchange
Series B Preferred Shares representing Series B Trust Preferred Interest in Compass Diversified Holdings	CODI PR B	New York Stock Exchange
Series C Preferred Shares representing Series C Trust Preferred Interest in Compass Diversified Holdings	CODI PR C	New York Stock Exchange

Indicate by check mark whether the ~~registrant:~~registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

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



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

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

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

As of ~~October~~April 28, ~~2019,~~2020, there were 59,900,000 Trust common shares of Compass Diversified Holdings outstanding.

COMPASS DIVERSIFIED HOLDINGS

QUARTERLY REPORT ON FORM 10-Q

For the period ended ~~September 30, 2019~~March 31, 2020

TABLE OF CONTENTS



		Page Number
FORWARD-LOOKING STATEMENTS		4

PART I. FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)
	CONDENSED CONSOLIDATED BALANCE SHEETS	5
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS	6
	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)	7
	CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY	8
	CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS	109
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	1211

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3731
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	6554

ITEM 4.	CONTROLS AND PROCEDURES	6654

PART II. OTHER INFORMATION		6755
ITEM 1.	LEGAL PROCEEDINGS	6755

ITEM 1A.	RISK FACTORS	6755

ITEM 6.	EXHIBITS	6757

SIGNATURES		6858

NOTE TO READER

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

the "Trust" and "Holdings" refer to Compass Diversified Holdings;

the "Company" refer to Compass Group Diversified Holdings LLC;

"businesses," "operating segments," "subsidiaries" and "reporting units" refer to, collectively, the businesses controlled by the Company;

the "Manager" refer to Compass Group Management LLC ("CGM");

the "Trust Agreement" refer to the Second Amended and Restated Trust Agreement of the Trust dated as of December 6, 2016;

the "2014 Credit Facility" refer to the credit agreement, as amended, entered into on June 14, 2014 with a group of lenders led by Bank of America N.A. as administrative agent, as amended from time to time, which provides for a Revolving Credit Facility and a Term Loan;

the "2018 Credit Facility" refer to the amended and restated credit agreement entered into on April 18, 2018 among the Company, the Lenders from time to time party thereto (the "Lenders"), Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (the "agent") and other agents party thereto.

the "2018 Revolving Credit Facility" refers to the $600 million in revolving loans, swing line loans and letters of credit provided by the 2018 Credit Facility that matures in 2023;

the "2018 Term Loan" refer to the $500 million term loan provided by the 2018 Credit ~~Facility that matures in April 2025;~~Facility;

the "LLC Agreement" refer to the fifth amended and restated operating agreement of the Company dated as of December 6, 2016; and

"we," "us" and "our" refer to the Trust, the Company and the businesses together.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, contains both historical and forward-looking statements. We may, in some cases, use words such as "project," "predict," "believe," "anticipate," "plan," "expect," "estimate," "intend," "should," "would," "could," "potentially," "may," or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward looking statements include statements about our expectations for adjusted EBITDA in the second quarter and the sufficiency of our capital resources. Forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of risks and uncertainties, some of which are beyond our control, including, among other things:

the adverse impact on the U.S. and global economy, including the markets in which we operate, of the novel coronavirus, which causes the Coronavirus disease 2019 (COVID-19) global pandemic, and the impact in the near, medium and long-term on our business, results of operations, financial position, liquidity or cash flows;

our ability to successfully operate our businesses on a combined basis, and to effectively integrate and improve future acquisitions;

our ability to remove CGM and CGM’s right to resign;

our organizational structure, which may limit our ability to meet our dividend and distribution policy;

our ability to service and comply with the terms of our indebtedness;

our cash flow available for distribution and reinvestment and our ability to make distributions in the future to our shareholders;

our ability to pay the management fee and profit allocation if and when due;

our ability to make and finance future acquisitions;

our ability to implement our acquisition and management strategies;

the regulatory environment in which our businesses operate;

trends in the industries in which our businesses operate;

changes in general economic or business conditions or economic or demographic trends in the United States and other countries in which we have a presence, including changes in interest rates and inflation;

environmental risks affecting the business or operations of our businesses;

our and CGM’s ability to retain or replace qualified employees of our businesses and CGM;

costs and effects of legal and administrative proceedings, settlements, investigations and claims; and

extraordinary or force majeure events affecting the business or operations of our businesses.

Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which we are not currently aware or which we currently deem immaterial could also cause our actual results to differ.

In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. The forward-looking events discussed in this Quarterly Report on Form 10-Q may not occur. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances, whether as a result of new information, future events or otherwise, except as required by law.

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COMPASS DIVERSIFIED HOLDINGS

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
(in thousands)	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	285,838		$	48,771		$	291,013		$	100,314
Accounts receivable, net	221,423			205,545			184,103			191,405
Inventories	332,221			307,437			305,636			317,306
Prepaid expenses and other current assets	41,975			29,670			33,711			35,247
Current assets of discontinued operations	—			89,762
Total current assets	881,457			681,185			814,463			644,272
Property, plant and equipment, net	142,291			146,601			143,799			146,428
Goodwill	438,019			471,115			438,519			438,519
Intangible assets, net	575,354			615,592			548,730			561,946
Other non-current assets	97,099			8,378			99,986			100,727
Non-current assets of discontinued operations	—			449,464
Total assets	$	2,134,220		$	2,372,335		$	2,045,497		$	1,891,892

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	87,753		$	77,169		$	63,069		$	70,089
Accrued expenses	123,207			106,612			102,743			108,768
Due to related party	8,142			11,093			7,973			8,049
Current portion, long-term debt	5,000			5,000
Other current liabilities	30,648			6,912			21,795			22,573
Current liabilities of discontinued operations	—			52,494
Total current liabilities	254,750			259,280			195,580			209,479
Deferred income taxes	31,275			33,984			31,726			33,039
Long-term debt	680,513			1,098,871			594,664			394,445
Other non-current liabilities	87,427			12,615			88,444			89,054
Non-current liabilities of discontinued operations	—			48,243
Total liabilities	1,053,965			1,452,993			910,414			726,017

Commitments and contingencies

Stockholders’ equity
Trust preferred shares, 50,000 authorized; 8,000 shares issued and outstanding at September 30, 2019 and December 31, 2018
Series A preferred shares, no par value; 4,000 shares issued and outstanding at September 30, 2019 and December 31, 2018	96,417			96,417
Series B preferred shares, no par value; 4,000 shares issued and outstanding at September 30, 2019 and December 31, 2018	96,504			96,504
Trust common shares, no par value, 500,000 authorized; 59,900 shares issued and outstanding at September 30, 2019 and December 31, 2018	924,680			924,680
Trust preferred shares, 50,000 authorized; 12,600 shares issued and outstanding at March 31, 2020 and December 31, 2019
Series A preferred shares, no par value; 4,000 shares issued and outstanding at March 31, 2020 and December 31, 2019							96,417			96,417
Series B preferred shares, no par value; 4,000 shares issued and outstanding at March 31, 2020 and December 31, 2019							96,504			96,504
Series C preferred shares, no par value; 4,600 shares issued and outstanding at March 31, 2020 and December 31, 2019							110,997			110,997
Trust common shares, no par value, 500,000 authorized; 59,900 shares issued and outstanding at March 31, 2020 and December 31, 2019							924,680			924,680
Accumulated other comprehensive loss	(6,063		)	(8,776		)	(5,457		)	(3,933		)
Accumulated deficit	(78,728		)	(249,453		)	(141,866		)	(109,338		)
Total stockholders’ equity attributable to Holdings	1,032,810			859,372			1,081,275			1,115,327
Noncontrolling interest	47,445			39,922			53,808			50,548
Noncontrolling interest of discontinued operations	—			20,048
Total stockholders’ equity	1,080,255			919,342			1,135,083			1,165,875
Total liabilities and stockholders’ equity	$	2,134,220		$	2,372,335		$	2,045,497		$	1,891,892

See notes to condensed consolidated financial statements.

COMPASS DIVERSIFIED HOLDINGS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
(in thousands, except per share data)	2019			2018			2019			2018			2020			2019
Net revenues	$	388,313		$	360,283		$	1,063,254		$	986,402		$	333,449		$	338,857
Cost of revenues	251,778			236,286			684,601			640,039			213,961			219,302
Gross profit	136,535			123,997			378,653			346,363			119,488			119,555
Operating expenses:
Selling, general and administrative expense	82,027			79,577			243,736			241,253			83,800			81,397
Management fees	8,874			10,768			28,352			32,204			8,620			10,957
Amortization expense	13,520			12,788			40,632			35,533			13,505			13,590
Impairment expense	33,381			—			33,381			—
Operating income (loss)	(1,267		)	20,864			32,552			37,373
Operating income													13,563			13,611
Other income (expense):
Interest expense, net	(11,525		)	(15,635		)	(48,424		)	(35,227		)	(8,597		)	(18,454		)
Loss on sale of securities (refer to Note C)	(4,893		)	—			(10,193		)	—
Loss on sale of securities (refer to Note B)													—			(5,300		)
Amortization of debt issuance costs	(770		)	(927		)	(2,625		)	(2,978		)	(525		)	(927		)
Loss on debt extinguishment	(5,038		)	—			(5,038		)	(744		)
Other income (expense), net	(689		)	511			(1,213		)	(2,285		)	661			(434		)
Income (loss) from continuing operations before income taxes	(24,182		)	4,813			(34,941		)	(3,861		)	5,102			(11,504		)
Provision for income taxes	4,400			5,470			10,375			7,557			222			1,424
Income (loss) from continuing operations	(28,582		)	(657		)	(45,316		)	(11,418		)	4,880			(12,928		)
Income from discontinued operations, net of income tax	—			6,423			16,901			14,931			—			1,427
Gain on sale of discontinued operations	2,039			—			330,203			1,165			—			121,659
Net income (loss)	(26,543		)	5,766			301,788			4,678
Net income													4,880			110,158
Less: Net income from continuing operations attributable to noncontrolling interest	1,242			688			3,997			2,475			1,215			1,368
Less: Net income (loss) from discontinued operations attributable to noncontrolling interest	—			352			(266		)	726
Net income (loss) attributable to Holdings	$	(27,785	)	$	4,726		$	298,057		$	1,477
Less: Net loss from discontinued operations attributable to noncontrolling interest													—			(518		)
Net income attributable to Holdings													$	3,665		$	109,308

Amounts attributable to Holdings
Income (loss) from continuing operations	$	(29,824	)	$	(1,345	)	$	(49,313	)	$	(13,893	)	$	3,665		$	(14,296	)
Income from discontinued operations, net of income tax	—			6,071			17,167			14,205			—			1,945
Gain on sale of discontinued operations, net of income tax	2,039			—			330,203			1,165			—			121,659
Net income (loss) attributable to Holdings	$	(27,785	)	$	4,726		$	298,057		$	1,477
Net income attributable to Holdings													$	3,665		$	109,308

Basic income (loss) per common share attributable to Holdings (refer to Note J)
Basic income (loss) per common share attributable to Holdings (refer to Note I)
Continuing operations	$	(1.33	)	$	(0.16	)	$	(1.95	)	$	(0.45	)	$	(0.26	)	$	(0.34	)
Discontinued operations	0.03			0.09			5.80			0.25			—			2.06
	$	(1.30	)	$	(0.07	)	$	3.85		$	(0.20	)	$	(0.26	)	$	1.72

Basic weighted average number of shares of common shares outstanding	59,900			59,900			59,900			59,900			59,900			59,900
Cash distributions declared per Trust common share (refer to Note J)	$	0.36		$	0.36		$	1.08		$	1.08

Cash distributions declared per Trust common share (refer to Note I)													$	0.36		$	0.36

See notes to condensed consolidated financial statements.

COMPASS DIVERSIFIED HOLDINGS

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three months ended September 30,					Nine months ended September 30,						Three months ended March 31,
(in thousands)	2019			2018		2019			2018			2020			2019

Net income (loss)	$	(26,543	)	$	5,766	$	301,788		$	4,678
Net income												$	4,880		$	110,158
Other comprehensive income (loss)
Foreign currency translation adjustments	(861		)	1,603		(608		)	(2,424		)	(2,118		)	577
Foreign currency amounts reclassified from accumulated other comprehensive income (loss) that increase (decrease) net income:
Foreign currency amounts reclassified from accumulated other comprehensive income (loss) that increase net income:
Disposition of Manitoba Harvest	—			—		4,791			—			—			4,791
Pension benefit liability, net	(690		)	34		(1,470		)	643			594			(109		)
Other comprehensive income (loss)	(1,551		)	1,637		2,713			(1,781		)	(1,524		)	5,259
Total comprehensive income (loss), net of tax	$	(28,094	)	$	7,403	$	304,501		$	2,897
Total comprehensive income, net of tax												3,356			115,417
Less: Net income attributable to noncontrolling interests	1,242			1,040		3,731			3,201			1,215			850
Less: Other comprehensive income (loss) attributable to noncontrolling interests	(67		)	266		(97		)	(462		)	(17		)	2
Total comprehensive income (loss) attributable to Holdings, net of tax	$	(29,269	)	$	6,097	$	300,867		$	158
Total comprehensive income attributable to Holdings, net of tax												$	2,158		$	114,565

See notes to condensed consolidated financial statements.

COMPASS DIVERSIFIED HOLDINGS

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(Unaudited)

(in thousands) Trust Preferred Shares Trust Common Shares Retained Earnings (Accumulated Deficit)
Accumulated Other
Comprehensive
Loss

Stockholders' Equity Attributable
to Holdings

Non-
Controlling
Interest

Non-
Controlling
Interest Attributable to Disc. Ops.

Total
Stockholders’
Equity
Series A Series B
Balance — July 1, 2018 $ 96,417
$ 96,504
$ 924,680
$ (195,318 ) $ (5,991 ) $ 916,292
$ 34,284
$ 19,456
$ 970,032
Net income —
—
—
4,726
—
4,726
688
352
5,766
Total comprehensive income, net —
—
—
—
1,637
1,637
—
—
1,637
Option activity attributable to noncontrolling shareholders —
—
—
—
—
—
2,529
—
2,529
Effect of subsidiary stock option exercise —
—
—
—
—
—
6,772
—
6,772
Purchase of noncontrolling interest —
—
—
—
—
—
(6,372 ) —
(6,372 )
Distributions paid - Trust Common Shares —
—
—
(21,564 ) —
(21,564 ) —
—
(21,564 )
Distributions paid - Trust Preferred Shares —
—
—
(4,773 ) —
(4,773 ) —
—
(4,773 )
Balance — September 30, 2018 $ 96,417
$ 96,504
$ 924,680
$ (216,929 ) $ (4,354 ) $ 896,318
$ 37,901
$ 19,808
$ 954,027

Balance — July 1, 2019 $ 96,417
$ 96,504
$ 924,680
$ 17,715
$ (4,512 ) $ 1,130,804
$ 45,977
$ —
$ 1,176,781
Net income (loss) —
—
—
(27,785 ) —
(27,785 ) 1,242
—
(26,543 )
Total comprehensive loss, net —
—
—
—
(1,551 ) (1,551 ) —
—
(1,551 )
Option activity attributable to noncontrolling shareholders —
—
—
—
—
—
936
—
936
Purchase of noncontrolling interest —
—
—
—
—
—
(710 ) —
(710 )
Distributions paid - Allocation Interests —
—
—
(43,313 ) —
(43,313 ) —
—
(43,313 )
Distributions paid - Trust Common Shares —
—
—
(21,564 ) —
(21,564 ) —
—
(21,564 )
Distributions paid - Trust Preferred Shares —
—
—
(3,781 ) —
(3,781 ) —
—
(3,781 )
Balance — September 30, 2019 $ 96,417
$ 96,504
$ 924,680
$ (78,728 ) $ (6,063 ) $ 1,032,810
$ 47,445
$ —
$ 1,080,255

~~See notes to condensed consolidated financial statements.~~

~~COMPASS DIVERSIFIED HOLDINGS~~

~~CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY~~

~~(Unaudited)~~


(in thousands)	Trust Preferred Shares				Trust Common Shares			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Stockholders' Equity Attributable to Holdings				Non- Controlling Interest				Non- Controlling Interest Attributable to Disc. Ops.				Total Stockholders’ Equity			Trust Preferred Shares									Trust Common Shares			Accumulated Deficit			Accumulated Other Comprehensive Loss			Stockholders' Equity Attributable to Holdings			Non- Controlling Interest			Non- Controlling Interest Attributable to Disc. Ops.			Total Stockholders’ Equity
	Series A		Series B																																			Trust Common Shares			Accumulated Deficit			Accumulated Other Comprehensive Loss			Stockholders' Equity Attributable to Holdings			Non- Controlling Interest			Non- Controlling Interest Attributable to Disc. Ops.			Total Stockholders’ Equity
Balance — January 1, 2018	$	96,417	$	—	Trust Common Shares		$	Retained Earnings (Accumulated Deficit)		924,680	Accumulated Other Comprehensive Loss			Stockholders' Equity Attributable to Holdings			$	Non- Controlling Interest			(145,316	Non- Controlling Interest Attributable to Disc. Ops.			)	Total Stockholders’ Equity		$	(2,573	)	$	873,208		$	33,709		$	19,082		$	925,999
Net income	—		—		—			1,477			—			1,477				2,475				726				4,678
Total comprehensive loss, net	—		—		—			—			(1,781		)	(1,781		)		—				—				(1,781		)
Issuance of Trust preferred shares, net of offering costs	—		96,504		—			—			—			96,504				—				—				96,504
Option activity attributable to noncontrolling shareholders	—		—		—			—			—			—				7,694				—				7,694
Effect of subsidiary stock option exercise	—		—		—			—			—			—				395				—				395
Purchase of noncontrolling interest	—		—		—			—			—			—				(6,372		)		—				(6,372		)
Distributions paid - Trust Common Shares	—		—		—			(64,692		)	—			(64,692		)		—				—				(64,692		)
Distributions paid - Trust Preferred Shares	—		—		—			(8,398		)	—			(8,398		)		—				—				(8,398		)
Balance — September 30, 2018	$	96,417	$	96,504	$	924,680		$	(216,929	)	$	(4,354	)	$	896,318			$	37,901			$	19,808			$	954,027
																													Series A			Series B			Series C			Trust Common Shares			Accumulated Deficit			Accumulated Other Comprehensive Loss			Stockholders' Equity Attributable to Holdings			Non- Controlling Interest			Non- Controlling Interest Attributable to Disc. Ops.			Total Stockholders’ Equity
Balance — January 1, 2019	$	96,417	$	96,504	$	924,680		$	(249,453	)	$	(8,776	)	$	859,372			$	39,922			$	20,048			$	919,342		$	96,417		$	96,504		$	—								Accumulated Other Comprehensive Loss			Stockholders' Equity Attributable to Holdings			Non- Controlling Interest			Non- Controlling Interest Attributable to Disc. Ops.			Total Stockholders’ Equity
Net income (loss)	—		—		—			298,057			—			298,057				3,997				(266		)		301,788			—			—			—			Trust Common Shares		—				109,308			—			109,308			1,368			(518		)	110,158
Total comprehensive income, net	—		—		—			—			2,713			2,713				—				—				2,713			—			—			—			—			Accumulated Deficit	—			5,259			5,259			—			—			5,259
Option activity attributable to noncontrolling shareholders	—		—		—			—			—			—				4,265				1,939				6,204			—			—			—			—			—			—			—			1,728			477			2,205
Purchase of noncontrolling interest																													—			—			—			—			—			—			—			(39		)	—			(39		)
Disposition of Manitoba Harvest																													—			—			—			—			—			—			—			—			(10,799		)	(10,799		)
Distributions paid - Trust Common Shares																													—			—			—			—			(21,564		)	—			(21,564		)	—			—			(21,564		)
Distributions paid - Trust Preferred Shares																													—			—			—			—			(3,781		)	—			(3,781		)	—			—			(3,781		)
Balance — March 31, 2019																													$	96,417		$	96,504		$	—		$	924,680		$	(165,490	)	$	(3,517	)	$	948,594		$	42,979		$	9,208		$	1,000,781

Balance — January 1, 2020																													$	96,417		$	96,504		$	110,997		$	924,680		$	(109,338	)	$	(3,933	)	$	1,115,327		$	50,548		$	—		$	1,165,875
Net income																													—			—			—			—			3,665			—			3,665			1,215			—			4,880
Total comprehensive loss, net																													—			—			—			—			—			(1,524		)	(1,524		)	—			—			(1,524		)
Option activity attributable to noncontrolling shareholders																													—			—			—			—			—			—			—			2,055			—			2,055
Effect of subsidiary stock option exercise	—		—		—			—			—			—				41				—				41			—			—			—			—			—			—			—			73			—			73
Purchase of noncontrolling interest	—		—		—			—			—			—				(780		)		—				(780		)	—			—			—			—			—			—			—			(83		)	—			(83		)
Disposition of Manitoba Harvest	—		—		—			—			—			—				—				(10,799		)		(10,799		)
Disposition of Clean Earth	—		—		—			—			—			—				—				(10,922		)		(10,922		)
Distributions paid - Allocation Interests	—		—		—			(51,296		)	—			(51,296		)		—				—				(51,296		)	—			—			—			—			(9,087		)	—			(9,087		)	—			—			(9,087		)
Distributions paid - Trust Common Shares	—		—		—			(64,692		)	—			(64,692		)		—				—				(64,692		)	—			—			—			—			(21,564		)	—			(21,564		)	—			—			(21,564		)
Distributions paid - Trust Preferred Shares	—		—		—			(11,344		)	—			(11,344		)		—				—				(11,344		)	—			—			—			—			(5,542		)	—			(5,542		)	—			—			(5,542		)
Balance — September 30, 2019	$	96,417	$	96,504	$	924,680		$	(78,728	)	$	(6,063	)	$	1,032,810			$	47,445			$	—			$	1,080,255
Balance — March 31, 2020																													$	96,417		$	96,504		$	110,997		$	924,680		$	(141,866	)	$	(5,457	)	$	1,081,275		$	53,808		$	—		$	1,135,083

See notes to condensed consolidated financial statements.

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

	Nine months ended September 30,						Three months ended March 31,
(in thousands)	2019			2018			2020			2019
Cash flows from operating activities:
Net income	$	301,788		$	4,678		$	4,880		$	110,158
Income from discontinued operations, net of income tax	16,901			14,931			—			1,427
Gain on sale of discontinued operations	330,203			1,165			—			121,659
Loss from continuing operations	(45,316		)	(11,418		)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Income (loss) from continuing operations							4,880			(12,928		)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation expense	24,628			22,826			8,301			7,996
Amortization expense	40,632			42,860			13,505			13,590
Impairment expense	33,381			—
Amortization of debt issuance costs and original issue discount	3,022			3,403			525			1,079
Unrealized (gain) loss on interest rate swap	3,486			(4,649		)
Unrealized loss on interest rate swap							—			1,099
Noncontrolling stockholder stock based compensation	4,265			5,973			2,055			1,728
Provision for loss on receivables	2,539			481			883			791
Deferred taxes	(2,208		)	(23		)	(2,692		)	(2,031		)
Loss on debt extinguishment	5,038			744
Other	853			(431		)	(515		)	256
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(19,187		)	(28,181		)	6,695			(801		)
Inventories	(24,863		)	(26,514		)	11,773			(6,624		)
Other current and non-current assets	(11,826		)	(4,786		)	(999		)	(1,370		)
Accounts payable and accrued expenses	27,278			35,805			(10,425		)	(10,145		)
Cash provided by operating activities - continuing operations	41,722			36,090
Cash (used in) provided by operating activities - discontinued operations	(10,138		)	22,682
Cash provided by operating activities	31,584			58,772
Cash provided by (used in) operating activities - continuing operations							33,986			(7,360		)
Cash used in operating activities - discontinued operations							—			(1,576		)
Cash provided by (used in) operating activities							33,986			(8,936		)
Cash flows from investing activities:
Acquisitions, net of cash acquired	—			(495,136		)
Purchases of property and equipment	(21,964		)	(34,690		)	(6,603		)	(5,426		)
Payment of interest rate swap	(675		)	(1,444		)	—			(94		)
Proceeds from sale of businesses	501,895			—			—			124,210
Other investing activities	1,673			(9		)	(43		)	1,802
Cash provided by (used in) investing activities - continuing operations	480,929			(531,279		)
Cash provided by (used in) investing activities - discontinued operations	279,219			(63,426		)
Cash provided by (used in) investing activities	760,148			(594,705		)
Cash (used in) provided by investing activities - continuing operations							(6,646		)	120,492
Cash provided by investing activities - discontinued operations							—			48,452
Cash (used in) provided by investing activities							(6,646		)	168,944

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

	Nine months ended September 30,						Three months ended March 31,
(in thousands)	2019			2018			2020			2019
Cash flows from financing activities:
Proceeds from the issuance of Trust preferred shares, net	—			96,504
Borrowings under credit facility	108,000			1,252,750			200,000			49,000
Repayments under credit facility	(533,500		)	(1,125,473		)	—			(193,250		)
Issuance of senior notes	—			400,000
Distributions paid - common shares	(64,692		)	(64,692		)	(21,564		)	(21,564		)
Distributions paid - preferred shares	(11,344		)	(8,398		)	(5,542		)	(3,781		)
Distributions paid - allocation interests	(51,296		)	—			(9,087		)	—
Net proceeds provided by noncontrolling shareholders	41			395			73			—
Repurchases of subsidiary stock	(778		)	(6,372		)
Debt issuance costs	—			(14,887		)
Purchase of noncontrolling interest							(83		)	(39		)
Other	(3,549		)	1,461			588			(2,814		)
Net cash (used in) provided by financing activities	(557,118		)	531,288
Net cash provided (used in) by financing activities							164,385			(172,448		)
Foreign currency impact on cash	(2,102		)	916			(1,026		)	(1,049		)
Net increase (decrease) in cash and cash equivalents	232,512			(3,729		)	190,699			(13,489		)
Cash and cash equivalents — beginning of period ⁽¹⁾	53,326			39,885			100,314			53,326
Cash and cash equivalents — end of period	$	285,838		$	36,156		$	291,013		$	39,837

⁽¹⁾ Includes cash from discontinued operations of $4.6 million at January 1, ~~2019 and $4.2 million at January 1, 2018.~~2019.

See notes to condensed consolidated financial statements.

COMPASS DIVERSIFIED HOLDINGS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~September 30, 2019~~March 31, 2020

Note A - Presentation and Principles of Consolidation

Compass Diversified Holdings, a Delaware statutory trust (the "Trust" or "Holdings") and Compass Group Diversified Holdings LLC, a Delaware limited liability company (the "Company"), were formed to acquire and manage a group of small and middle-market businesses headquartered in North America. In accordance with the second amended and restated Trust Agreement, dated as of December 6, 2016 (as amended and restated, the "Trust Agreement"), the Trust is sole owner of 100% of the Trust Interests (as defined in the Company’s fifth amended and restated operating agreement, dated as of December 6, 2016 (as amended and restated, the "LLC Agreement")) of the Company and, pursuant to the LLC Agreement, the Company has, outstanding, the identical number of Trust Interests as the number of outstanding shares of the Trust. The Company is the operating entity with a board of directors and other corporate governance responsibilities, similar to that of a Delaware corporation.

The Company is a controlling owner of 8 businesses, or reportable operating segments, at ~~September 30, 2019.~~March 31, 2020. The segments are as follows: 5.11 Acquisition Corp. ("5.11" ~~or "5.11 Tactical"~~), Velocity Outdoor, Inc. (formerly Crosman Corp.) ("Velocity Outdoor" or "Velocity"), The Ergo Baby Carrier, Inc. ("Ergobaby"), Liberty Safe and Security Products, Inc. ("Liberty Safe" or "Liberty"), Compass AC Holdings, Inc. ("ACI" or "Advanced Circuits"), AMT Acquisition Corporation ("Arnold"), FFI Compass, Inc. ("Foam Fabricators" or "Foam") and The Sterno Group, LLC ("Sterno"). Refer to Note ED - "Operating Segment Data" for further discussion of the operating segments. Compass Group Management LLC, a Delaware limited liability company ("CGM" or the "Manager"), manages the day to day operations of the Company and oversees the management and operations of our businesses pursuant to a Management Services Agreement ("MSA").

Basis of Presentation

The condensed consolidated financial statements for the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2020 and March 31, 2019 ~~and September 30, 2018~~ are unaudited, and in the opinion of management, contain all adjustments necessary for a fair presentation of the condensed consolidated financial statements. Such adjustments consist solely of normal recurring items. Interim results are not necessarily indicative of results for a full year or any subsequent interim period. The condensed consolidated financial statements and notes are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP" or "GAAP") and presented as permitted by Form 10-Q and do not contain certain information included in the annual consolidated financial statements and accompanying notes of the Company. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Consolidation

The condensed consolidated financial statements include the accounts of Holdings and all majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Discontinued Operations

During the first quarter of 2019, the Company completed the sale of FHF Holdings Ltd. ("Manitoba Harvest"), the parent company of Fresh Hemp Foods Ltd. ~~("Manitoba Harvest").~~ Additionally, during the second quarter of 2019, the Company completed the sale of CEHI Acquisition Corp. ("Clean Earth"), the parent company of Clean Earth Holdings, Inc. ("and Clean ~~Earth").~~Earth Inc. The results of operations of Manitoba Harvest and Clean Earth are reported as discontinued operations in the condensed consolidated statements of operations for the ~~nine~~three months ended ~~September 30,~~March 31, 2019. Refer to Note CB - "Discontinued Operations" for additional information. Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations.

Seasonality

Earnings of certain of our operating segments are seasonal in nature due to various recurring events, holidays and seasonal weather patterns, as well as the timing of our acquisitions during a given year. Historically, the third and fourth quarter produce the highest net sales during our fiscal year.

Recently Adopted Accounting Pronouncements

~~Leases~~

As of January 1, 2019, the Company adopted Accounting Standards Update ("ASU") No. 2016-02, Leases ("Topic 842"). The new standard requires an entity to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. The standard update offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. In ~~July 2018,~~June 2016, the Financial Accounting Standards Board ("FASB") issued two updates to Topic 842 to clarify how to apply certain aspects of the new lease standard, and to give entities another option for transition and to provide lessors with a practical expedient to reduce the cost and complexity of implementing the new standard. The transition option allows entities to not apply the new lease standard in the comparative periods presented in the financial statements in the year of adoption. The Company adopted the new standard using the optional transition method. The reported results for reporting periods after January 1, 2019 are presented under the new lease guidance while prior period amounts were prepared under the previous lease guidance.

The new standard provides a number of optional practical expedients in transition. The Company elected to use the package of practical expedients that allows us to not reassess: (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. We additionally elected to use the practical expedient that allows lessees to treat the lease and non-lease components of leases as a single lease component and the practical expedient pertaining to land easements. In addition, the new standard provides for an accounting election that permits a lessee to elect not to apply the recognition requirements of Topic 842 to short-term leases by class of underlying asset. The Company adopted this accounting election for all classes of assets.

The Company has performed an assessment of the impact of the adoption of Topic 842 on the Company's consolidated financial position and results of operations for the Company's leases, which consist of manufacturing facilities, warehouses, office facilities, retail stores, equipment and vehicle leases. The adoption of the new lease standard on January 1, 2019 resulted in the recognition of right-of-use assets of approximately $90.6 million and lease liabilities for operating leases of approximately $97.4 million on our Consolidated Balance Sheets, with no material impact to its Consolidated Statements of Operations or Consolidated Statement of Cash Flows. We implemented processes and a lease accounting system to ensure adequate internal controls were in place to assess our leasing arrangements and enable proper accounting and reporting of financial information upon adoption. No cumulative effect adjustment was recognized as the amount was not material. Refer to "~~Note O - Commitments and Contingencies" for additional information regarding the Company's adoption of Topic 842.~~

~~Recently Issued Accounting Pronouncements~~

~~In June 2016, the FASB issued~~ ASU No. 2016-13, Financial Instruments—Credit Losses, which ~~will require~~requires companies to present assets held at amortized cost and available for sale debt securities

net of the amount expected to be collected. The guidance requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectibility. The guidance was effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted. The adoption of this guidance on January 1, 2020 did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. The guidance will be effective for fiscal years and interim periods beginning after December 15, ~~2019~~2021 and early adoption is permitted. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

Note B — ~~Acquisitions~~

~~Acquisition of Foam Fabricators~~

On February 15, 2018, pursuant to an agreement entered into on January 18, 2018, the Company, through a wholly owned subsidiary, FFI Compass, Inc. (“Buyer”), entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Warren F. Florkiewicz (“Seller”) pursuant to which Buyer acquired all of the issued and outstanding capital stock of Foam Fabricators, Inc., a Delaware corporation (“Foam Fabricators”). Foam Fabricators is a leading designer and manufacturer of custom molded protective foam solutions and original equipment manufacturer ("OEM") components made from expanded polymers such as expanded polystyrene (EPS) and expanded polypropylene (EPP). Founded in 1957 and headquartered in Scottsdale, Arizona, it operates 13 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 and other products.

The Company made loans to, and purchased a 100% controlling interest in Foam Fabricators. The final purchase price, after the working capital settlement and net of transaction costs, was approximately $253.4 million. The Company funded the acquisition through a draw on the 2014 Revolving Credit Facility. The transaction was accounted for as a business combination. CGM acted as an advisor to the Company in the acquisition and provided integration services during the first year of the Company's ownership. CGM received integration service fees of $2.25 million payable over a twelve month period as services were rendered. The Company incurred $1.6 million of transaction costs in conjunction with the Foam Fabricators acquisition, which was included in selling, general and administrative expense in the consolidated results of operations in the quarter ended March 31, 2018. The results of operations of Foam Fabricators have been included in the consolidated results of operations since the date of acquisition. Foam Fabricator's results of operations are reported as a separate operating segment.

The allocation of the purchase price, which was finalized during the fourth quarter of 2018, was based upon management's estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates were based on, but not limited to, expected future revenue and cash flows, expected future growth rates and estimated discount rates. Current and noncurrent assets and current and other liabilities were estimated at their historical carrying values. Property, plant and equipment was valued through a purchase price appraisal and will be depreciated on a straight-line basis over the respective remaining useful lives. Goodwill was calculated as the excess of the consideration transferred over the fair value of the identifiable net assets and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. The tradename was valued at $4.2 million using a relief from royalty methodology, in which an asset is valuable to the extent that the ownership of the asset relieves the company from the obligation of paying royalties for the benefits generated by the asset. The customer relationships intangible asset was valued at $114.1 million using an excess earnings methodology, in which an asset is valuable to the extent it enables its owners to earn a return in excess of the required returns on the other assets utilized in the business. The customer relationships intangible asset was derived using a risk adjusted discount rate.

~~Acquisition of Rimports~~

On February 26, 2018, the Company's Sterno subsidiary acquired all of the issued and outstanding capital stock of Rimports, Inc., a Utah corporation (“Rimports”), pursuant to a Stock Purchase Agreement, dated January 23, 2018, by and among Sterno and Jeffery W. Palmer, individually and in his capacity as Seller Representative, the Jeffery Wayne Palmer Dynasty Trust dated December 26, 2011, the Angela Marie Palmer Irrevocable Trust dated December 26, 2011, the Angela Marie Palmer Charitable Lead Trust, the Fidelity Investments Charitable Gift Fund, the TAK Irrevocable Trust dated June 7, 2012, and the SAK Irrevocable Trust dated June 7, 2012. Headquartered in Provo, Utah, Rimports is a manufacturer and distributor of branded and private label scented wickless candle products used for home décor and fragrance. Rimports offers an extensive line of wax warmers, scented wax cubes, essential oils and diffusers, and other home fragrance systems, through the mass retailer channel.

Sterno purchased a 100% controlling interest in Rimports. The purchase price, after the working capital settlement and net of transaction costs, was approximately $154.4 million. The purchase price of Rimports included a potential earn-out of up to $25 million contingent on the attainment of certain future performance criteria of Rimports for the twelve-month period from May 1, 2017 to April 30, 2018 and the fourteen month period from March 1, 2018 to April 30, 2019. The fair value of the contingent consideration was estimated at $4.8 million. Sterno funded the acquisition through their intercompany credit facility with the Company. The transaction was accounted for as a business combination. Sterno incurred $0.6 million of transaction costs in conjunction with the acquisition of Rimports, which was included in selling, general and administrative expense in the consolidated results of operations in the quarter ended March 31, 2018. The results of operations of Rimports have been included in the consolidated results of operations since the date of acquisition. Rimport's results of operations are included in the Sterno operating segment.

The allocation of the purchase price, which was finalized during the fourth quarter of 2018, was based upon management's estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates were based on, but not limited to, expected future revenue and cash flows, expected future growth rates and estimated discount rates. Current and noncurrent assets and current and other liabilities were estimated at their historical carrying values. Property, plant and equipment was valued through a purchase price appraisal and will be depreciated on a straight-line basis over the respective remaining useful lives. Goodwill was calculated as the excess of the consideration transferred over the fair value of the identifiable net assets and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. The tradename was valued at $6.6 million using a relief from royalty methodology, in which an asset is valuable to the extent that the ownership of the asset

relieves the company from the obligation of paying royalties for the benefits generated by the asset. The customer relationships intangible asset was valued at $79.1 million using an excess earnings methodology, in which an asset is valuable to the extent it enables its owners to earn a return in excess of the required returns on the other assets utilized in the business. The customer relationships intangible asset was derived using a risk adjusted discount rate.

~~Unaudited pro forma information~~

The following unaudited pro forma data for the nine months ended September 30, 2018 gives effect to the acquisition of Foam Fabricators and Sterno's acquisition of Rimports, as described above, and the disposition of Manitoba Harvest and Clean Earth, as if these transactions had been completed as of January 1, 2018. The pro forma data gives effect to historical operating results with adjustments to interest expense, amortization and depreciation expense, management fees and related tax effects. The information is provided for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the transaction had been consummated on the date indicated, nor is it necessarily indicative of future operating results of the consolidated companies and should not be construed as representing results for any future period.

(in thousands) Nine months ended September 30, 2018
Net revenues $ 1,026,230
Gross profit 356,782
Operating income 40,481
Net loss (13,055 )
Net loss attributable to Holdings (15,530 )
Basic and fully diluted net loss per share attributable to Holdings $ (0.49 )

~~Other acquisitions~~

~~Velocity Outdoor~~

~~Ravin Crossbows~~ - On September 4, 2018, Velocity Outdoor (formerly Crosman Corp.) acquired all of the outstanding membership interests in Ravin Crossbows, LLC ("Ravin" or "Ravin Crossbows") for a purchase price of approximately $98.0 million, net of transaction costs, plus a potential earn-out of up to $25.0 million based on gross profit levels for the trailing twelve month period ending December 31, 2018. Velocity funded the acquisition and payment of related transaction costs through the issuance of an additional $38.9 million in intercompany loans and the issuance of additional equity to the Company of $60.6 million. Velocity recorded a purchase price allocation for Ravin comprised of $67.5 million in intangible assets ($14.1 million in finite lived trade name, $42.6 million in technologies valued using an excess earnings methodology, and $10.8 million in customer relationships), $2.5 million in inventory step-up, and $13.3 million in goodwill which is expected to be deductible for income tax purposes. The remainder of the purchase consideration was allocated to net assets acquired. The potential earn-out was valued at $4.7 million as part of the purchase price allocation. Velocity incurred transaction costs of $1.4 million related to the Ravin acquisition, which were recorded as selling, general and administrative costs in the accompanying statement of operations as of December 31, 2018. The purchase price allocation was finalized during the first quarter of 2019.

~~Note C —~~ Discontinued Operations

Sale of Clean Earth

On May 8, 2019, the Company, as majority stockholder of CEHI Acquisition Corporation ~~(“CEHI”~~("Clean Earth" or “CEHI”) and as Sellers’ Representative, entered into a definitive Stock Purchase Agreement (the “Purchase Agreement”) with Calrissian Holdings, LLC (“Buyer”), CEHI, the other holders of stock and options of CEHI and, as Buyer’s guarantor, Harsco Corporation, pursuant to which Buyer would acquire all of the issued and outstanding securities of CEHI, the parent company of the operating entity, Clean Earth, Inc.

On June 28, 2019, Buyer completed the acquisition of all of the issued and outstanding securities of CEHI pursuant to the Purchase Agreement. The sale price for ~~CEHI~~Clean Earth was based on an aggregate total enterprise value of $625 million and is subject to customary working capital adjustments. After the allocation of the sale proceeds to ~~CEHI~~Clean Earth non-controlling equity holders, the repayment of intercompany loans to the Company (including accrued interest) of $224.6 million, and the payment of transaction expenses of approximately $10.7 million, the Company received approximately $327.3 million of total proceeds at closing related to our equity interests in ~~CEHI.~~Clean Earth. The Company recognized a gain on

the sale of CEHI of $206.3 million in the second quarter of 2019. During the third quarter of 2019, the Company received the working capital settlement from the Buyer and recorded an additional $2.2 million gain related to the sale of Clean ~~Earth.~~Earth of $209.3 million during the year ended December 31, 2019.

Summarized results of operations of Clean Earth for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 ~~and the three and nine months ended September 30, 2018 through the date of disposition~~ are as follows (in thousands):


	Three months ended September 30, 2018			For the period January 1, 2019 through disposition			Nine months ended September 30, 2018			Three months ended March 31, 2019
Net sales	$	71,116		$	132,737		$	199,579		$	63,632
Gross profit	18,610			39,678			56,589			16,633
Operating income	4,278			6,232			12,495			1,256
Income from continuing operations before income taxes	4,202			5,880			12,215			991
Benefit for income taxes	(2,627		)	(11,607		)	(2,247		)	(1,022		)
Income from discontinued operations ⁽¹⁾	$	6,829		$	17,487		$	14,462		$	2,013

⁽¹⁾The results of operations for the ~~periods from January 1, 2019 through the date of disposition, and the~~ three ~~and nine~~ months ended ~~September 30, 2018, each exclude $10.2~~March 31, 2019, excludes $4.7 million ~~and $4.5 million and $12.2 million, respectively,~~ of intercompany interest expense.

Sale of Manitoba Harvest

On February 19, 2019, the Company ~~as majority shareholder of Manitoba Harvest and as Shareholder Representative,~~ entered into a definitive agreement ~~(the “Arrangement Agreement”)~~ with Tilray, Inc. ("Tilray")~~, the other shareholders of Manitoba Harvest~~ and a wholly-owned subsidiary of Tilray, 1197879 B.C. Ltd. (“Tilray Subco”), to sell to Tilray, through Tilray Subco, all of the issued and outstanding securities of our majority owned subsidiary, Manitoba ~~Harvest.~~

~~On February 28, 2019, Tilray Subco completed~~Harvest, for total consideration of up to C$419 million. The completion of the ~~acquisition of all the issued and outstanding securities~~sale of Manitoba Harvest ~~pursuant~~was subject to approval by the ~~Arrangement Agreement.~~British Columbia Supreme Court, which occurred on February 21, 2019. The sale closed on February 28, 2019. Subject to certain customary adjustments, the shareholders of Manitoba Harvest, including the Company, received ~~or will receive~~ the following from Tilray as consideration for their shares of Manitoba Harvest: (i) C$150 million in cash to the holders of preferred shares of Manitoba Harvest and the holders of common shares of Manitoba Harvest (“Common Holders”) and C$127.5 million in shares of class 2 Common Stock of Tilray (“Tilray Common Stock”) to the Common Holders on the closing date of the sale (the “Closing Date Consideration”), and (ii) C$50 million in cash and C$42.5 million in Tilray Common Stock

to the Common Holders on the date that iswas six months after the closing date of the arrangement (the “Deferred Consideration”). The sale consideration also ~~includes~~included a potential earnout of up to C$49 million in Tilray Common Stock to the Common Holders, if Manitoba Harvest ~~achieves~~achieved certain levels of U.S. branded gross sales of edible or topical products containing broad spectrum hemp extracts or cannabidiols prior to December 31, 2019. The threshold for the earnout was not achieved and no additional amount was recorded related to sale of Manitoba Harvest at December 31, 2019.

The cash portion of the Closing Date Consideration was reduced by the amount of the net indebtedness (including accrued interest) of Manitoba Harvest on the closing date of C$71.3 million ($53.7 million) and transaction expenses of approximately C$5.0 million. The Company's share of the net proceeds after accounting for the redemption of the noncontrolling shareholders and the payment of net indebtedness of Manitoba Harvest and transaction expenses was approximately $124.2 million in cash proceeds and in Tilray Common Stock. ~~We recorded a receivable of $48.2 million as of March 31, 2019 related to the Deferred Consideration portion of the proceeds.~~ The Company recognized a gain on the sale of Manitoba Harvest of $121.7 million in the ~~three months ended March 31,~~first quarter of 2019. In August 2019, the Company received the Deferred Consideration related to the sale. The Company's portion of the Deferred Consideration totaled $28.4 million in cash proceeds and $19.6 million in Tilray Common Stock. ~~No amount has been recorded related to the potential earnout as of September 30, 2019 based on an assessment of probability at the end of the quarter.~~

The Tilray Common Stock consideration was issued in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") and pursuant to exemptions from applicable securities laws of any state of the United States, such that any shares of Tilray Common Stock received by the Common Holders were freely tradeable. The Company sold the Tilray Common Stock received as part of the Closing ~~Date~~ Consideration during March 2019, recognizing a net loss of $5.3 million in Other income/ (expense) during the quarter ended March 31,

2019. In August 2019, the Company sold the Tilray Common Stock received as part of the Deferred Consideration, recognizing a loss of $4.9 million in Other income/ (expense) during the quarter ended September 30, 2019.

Summarized results of operations of Manitoba Harvest for the ~~nine months ended September 30,~~period from January 1, 2019 ~~and the three and nine months ended September 30, 2018~~ through the date of disposition are as follows (in thousands):


	Three months ended September 30, 2018			For the period January 1, 2019 through disposition			Nine months ended September 30, 2018			For the period January 1, 2019 through disposition
Net revenues	$	17,300		$	10,024		$	53,169		$	10,024
Gross profit	7,097			4,874			23,545			4,874
Operating loss	(886		)	(1,118		)	(670		)	(1,118		)
Loss before income taxes	(896		)	(1,127		)	(694		)	(1,127		)
Benefit for income taxes	(490		)	(541		)	(1,163		)	(541		)
Income (loss) from discontinued operations ⁽¹⁾	$	(406	)	$	(586	)	$	469		$	(586	)

⁽¹⁾ The results of operations for the ~~periods~~period from January 1, 2019 through the date of disposition ~~and the three and nine months ended September 30, 2018 exclude~~excludes $1.0 million, ~~$1.3 million and $3.8 million, respectively,~~ of intercompany interest expense.

~~The following table presents summary balance sheet information of the Clean Earth and Manitoba Harvest businesses that is presented as discontinued operations as of December 31, 2018 (in thousands~~):

December 31, 2018
Manitoba Harvest Clean Earth Total
Assets:
   Cash and cash equivalents $ 2,577
$ 1,978
$ 4,555
   Accounts receivable, net 7,169
59,689
66,858
   Inventories 11,436
—
11,436
   Prepaid expenses and other current assets 773
6,140
6,913
   Current assets of discontinued operations $ 21,955
$ 67,807
$ 89,762
   Property, plant and equipment, net 18,157
62,060
80,217
   Goodwill 37,777
144,778
182,555
   Intangible assets, net 53,533
129,530
183,063
   Other non-current assets —
3,629
3,629
   Non-current assets of discontinued operations $ 109,467
$ 339,997
$ 449,464
Liabilities:
   Accounts payable 4,259
26,135
30,394
   Accrued expenses 4,313
16,063
20,376
   Due to related party 350
—
350
   Other current liabilities 507
867
1,374
   Current liabilities of discontinued operations $ 9,429
$ 43,065
$ 52,494
   Deferred income taxes 12,675
28,300
40,975
   Other non-current liabilities 2,093
5,175
7,268
   Non-current liabilities of discontinued operations $ 14,768
$ 33,475
$ 48,243
Noncontrolling interest of discontinued operations $ 11,160
$ 8,888
$ 20,048

Note DC — Revenue

~~Effective January 1, 2018, the~~The Company ~~adopted~~recognizes revenue in accordance with the provisions of Revenue from Contracts with Customers, or ASC 606. The adoption of the new revenue guidance represents a change in accounting principle that will more closely align revenue recognition with the transfer of control of the Company's goods and services and will provide financial

~~statement readers with enhanced disclosures. In accordance with the new revenue guidance, revenue~~Revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services, and excludes any sales incentives or taxes collected from customers which are subsequently remitted to government authorities.

Disaggregated Revenue - Revenue Streams and Timing of Revenue Recognition - The Company disaggregates revenue by strategic business unit and by geography for each strategic business unit which are categories that depict how the nature, amount and uncertainty of revenue and cash flows are affected by economic factors. This disaggregation also represents how the Company evaluates its financial performance, as well as how the Company communicates its financial performance to the investors and other users of its financial statements. Each strategic business unit represents the Company’s reportable segments and offers different products and services.

The following tables provide disaggregation of revenue by reportable segment geography for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):


	Three months ended September 30, 2019																		Three months ended March 31, 2020
	5.11		Ergo		Liberty		Velocity		ACI		Arnold		Foam		Sterno		Total		5.11		Ergo		Liberty		Velocity		ACI		Arnold		Foam		Sterno		Total
United States	$	77,783	$	6,505	$	24,061	$	42,126	$	21,897	$	18,227	$	25,833	$	105,260	$	321,692	$	72,427	$	6,258	$	24,657	$	25,879	$	21,696	$	18,563	$	23,587	$	80,016	$	273,083
Canada	1,897		906		668		1,981		—		153		—		4,145		9,750		1,474		700		303		1,920		—		156		—		2,927		7,480
Europe	7,504		6,951		—		1,420		—		9,758		—		447		26,080		6,307		5,787		—		1,698		—		8,328		—		58		22,178
Asia Pacific	2,429		8,820		—		239		—		1,678		—		1,565		14,731		3,511		5,903		—		246		—		1,395		—		28		11,083
Other international	8,440		136		—		881		—		1,079		5,471		53		16,060		12,062		1,001		—		647		—		1,116		4,796		3		19,625
	$	98,053	$	23,318	$	24,729	$	46,647	$	21,897	$	30,895	$	31,304	$	111,470	$	388,313	$	95,781	$	19,649	$	24,960	$	30,390	$	21,696	$	29,558	$	28,383	$	83,032	$	333,449

Three months ended September 30, 2018
5.11 Ergo Liberty Velocity ACI Arnold Foam Sterno Total
United States $ 62,085
$ 8,190
$ 17,263
$ 29,862
$ 23,424
$ 18,202
$ 28,378
$ 110,274
$ 297,678
Canada 1,465
697
609
2,062
—
264
—
2,934
8,031
Europe 6,871
7,962
—
1,231
—
9,390
—
248
25,702
Asia Pacific 3,919
7,176
—
375
—
1,311
—
110
12,891
Other international 9,002
235
—
759
—
724
4,959
302
15,981
$ 83,342
$ 24,260
$ 17,872
$ 34,289
$ 23,424
$ 29,891
$ 33,337
$ 113,868
$ 360,283

Nine months ended September 30, 2019
5.11 Ergo Liberty Velocity ACI Arnold Foam Sterno Total
United States $ 225,124
$ 20,738
$ 65,797
$ 93,243
$ 67,405
$ 53,778
$ 78,508
$ 273,002
$ 877,595
Canada 6,211
2,552
1,769
5,232
—
516
—
12,361
28,641
Europe 20,658
21,026
—
5,253
—
28,584
—
1,383
76,904
Asia Pacific 9,007
23,656
—
671
—
4,479
—
2,273
40,086
Other international 17,978
769
—
2,996
—
3,047
15,126
112
40,028
$ 278,978
$ 68,741
$ 67,566
$ 107,395
$ 67,405
$ 90,404
$ 93,634
$ 289,131
$ 1,063,254


	Nine months ended September 30, 2018																		Three months ended March 31, 2019
	5.11		Ergo		Liberty		Velocity		ACI		Arnold		Foam		Sterno		Total		5.11		Ergo		Liberty		Velocity		ACI		Arnold		Foam		Sterno		Total
United States	$	192,382	$	25,790	$	60,126	$	80,629	$	68,454	$	54,417	$	70,604	$	255,054	$	807,456	$	70,477	$	7,335	$	21,736	$	26,164	$	23,069	$	17,916	$	26,137	$	85,134	$	277,968
Canada	5,938		2,277		1,615		5,118		—		978		—		9,750		25,676		1,664		819		468		1,477		—		179		—		5,032		9,639
Europe	23,334		21,795		—		4,377		—		29,065		—		1,210		79,781		7,282		6,531		—		2,201		—		9,770		—		683		26,467
Asia Pacific	12,344		19,713		—		978		—		3,803		—		481		37,319		3,414		7,306		—		229		—		1,260		—		290		12,499
Other international	18,024		801		—		3,164		—		2,223		11,384		574		36,170		5,252		461		—		1,066		—		903		4,545		57		12,284
	$	252,022	$	70,376	$	61,741	$	94,266	$	68,454	$	90,486	$	81,988	$	267,069	$	986,402	$	88,089	$	22,452	$	22,204	$	31,137	$	23,069	$	30,028	$	30,682	$	91,196	$	338,857

Note ED — Operating Segment Data

At ~~September 30, 2019,~~March 31, 2020, the Company had 8 reportable operating segments. Each operating segment represents a platform acquisition. The Company’s operating segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. A description of each of the reportable segments and the types of products and services from which each segment derives its revenues is as follows:

•

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

•

Ergobaby is a designer, marketer and distributor of wearable baby carriers and accessories, blankets and swaddlers, nursing pillows, strollers and related products. Ergobaby primarily sells its Ergobaby and Baby Tula branded products through brick-and-mortar retailers, national chain stores, online retailers, its own websites and distributors and derives more than 50% of its sales from outside of the United States. Ergobaby is headquartered in Los Angeles, California.


•	Liberty Safe is a designer, manufacturer and marketer of premium home, gun and office safes in North America. From its over 300,000 square foot manufacturing facility, Liberty produces a wide range of home and gun safe models in a broad assortment of sizes, features and styles. Liberty is headquartered in Payson, Utah.

•

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


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

•

Arnold is a global manufacturer of engineered magnetic solutions for a wide range of specialty applications and end-markets, including aerospace and defense, general industrial, motorsport/automotive, oil and gas, medical, ~~general industrial, electric utility,~~energy, reprographics and advertising ~~specialty markets.~~specialties. Arnold produces high performance permanent magnets (PMAG), precision foil products (Precision Thin Metals or "PTM"), and flexible magnets (Flexmag™) that are mission critical in motors, generators, sensors and other systems and components. Based on its long-term relationships, Arnold has built a diverse and blue-chip customer base totaling more than 2,000 clients worldwide. Arnold is headquartered in Rochester, New York.

•

Foam Fabricators is a designer and manufacturer of custom molded protective foam solutions and original equipment manufacturer components made from expanded polystyrene and expanded polypropylene. Foam Fabricators provides products to a variety of end markets, including appliances and electronics, pharmaceuticals, health and wellness, automotive, building and other products. Foam Fabricators is headquartered in Scottsdale, Arizona and operates 13 molding and fabricating facilities across North America.

•

Sterno is a manufacturer and marketer of portable food warming fuel and creative table lighting solutions for the food service industry and flameless candles, outdoor lighting products, scented wax cubes and warmer products for consumers. Sterno's products include wick and gel chafing fuels, butane stoves and accessories, liquid and traditional wax candles, scented wax cubes and warmer products used for home decor and fragrance systems, catering equipment and outdoor lighting products. Sterno is headquartered in Corona, California.

The tabular information that follows shows data for each of the operating segments reconciled to amounts reflected in the consolidated financial statements. The results of operations of each of the operating segments are included in consolidated operating results as of their date of acquisition. There were no significant inter-segment transactions.

Summary of Operating Segments


Net Revenues	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
(in thousands)	2019		2018		2019		2018		2020		2019

5.11 Tactical	$	98,053	$	83,342	$	278,978	$	252,022
5.11									$	95,781	$	88,089
Ergobaby	23,318		24,260		68,741		70,376		19,649		22,452
Liberty	24,729		17,872		67,566		61,741		24,960		22,204
Velocity Outdoor	46,647		34,289		107,395		94,266		30,390		31,137
ACI	21,897		23,424		67,405		68,454		21,696		23,069
Arnold	30,895		29,891		90,404		90,486		29,558		30,028
Foam Fabricators	31,304		33,337		93,634		81,988		28,383		30,682
Sterno	111,470		113,868		289,131		267,069		83,032		91,196
Total segment revenue	388,313		360,283		1,063,254		986,402		333,449		338,857
Corporate and other	—		—		—		—		—		—
Total consolidated revenues	$	388,313	$	360,283	$	1,063,254	$	986,402	$	333,449	$	338,857


Segment profit (loss) ⁽¹⁾	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
(in thousands)	2019			2018			2019			2018			2020			2019

5.11 Tactical	$	5,977		$	1,740		$	13,388		$	3,143
5.11													$	4,586		$	2,338
Ergobaby	3,220			4,191			9,151			10,106			1,554			3,136
Liberty	2,726			467			5,812			4,894			3,145			1,415
Velocity Outdoor ⁽²⁾	(27,902		)	1,833			(27,635		)	5,125			(1,164		)	341
ACI	6,122			6,902			19,087			19,202			5,738			6,481
Arnold	2,681			2,287			6,385			6,957			1,653			1,477
Foam Fabricators	4,141			4,100			12,011			7,856			3,512			3,506
Sterno	12,724			11,634			28,821			19,113			5,269			7,982
Total	9,689			33,154			67,020			76,396			24,293			26,676
Reconciliation of segment profit (loss) to consolidated income (loss) before income taxes:
Interest expense, net	(11,525		)	(15,635		)	(48,424		)	(35,227		)	(8,597		)	(18,454		)
Other income (expense), net	(689		)	1,255			(1,213		)	(2,285		)	661			(434		)
Corporate and other ⁽³⁾⁽²⁾	(21,657		)	(13,961		)	(52,324		)	(42,745		)	(11,255		)	(19,292		)
Total consolidated income (loss) before income taxes	$	(24,182	)	$	4,813		$	(34,941	)	$	(3,861	)	$	5,102		$	(11,504	)


⁽¹⁾	Segment profit (loss) represents operating income (loss).


⁽²⁾	~~Velocity Outdoor - Operating loss from Velocity Outdoor for the three and nine months ended September 30, 2019 includes $33.4 million in goodwill impairment expense.~~ ~~Refer to Note G - " Goodwill and Other Intangible Assets."~~


⁽³⁾	Primarily relates to management fees expensed and payable to CGM, and corporate overhead expenses. ~~The three and nine months ended September 30, 2019 include a loss of $4.9 million and $10.2 million, respectively, related to the loss on the sale of Tilray securities.~~


Depreciation and Amortization Expense	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
(in thousands)	2019		2018		2019		2018		2020		2019

5.11 Tactical	$	5,275	$	5,323	$	15,730	$	15,882
5.11									$	5,152	$	5,157
Ergobaby	2,319		2,086		6,543		6,374		2,053		2,111
Liberty	388		414		1,185		1,130		406		407
Velocity Outdoor	3,217		2,077		9,757		6,081		3,247		3,251
ACI	525		786		1,717		2,384		646		669
Arnold	1,616		1,572		4,818		4,656		1,631		1,622
Foam Fabricators	3,044		2,957		9,054		7,724		3,047		2,997
Sterno	5,539		7,584		16,456		21,455		5,624		5,372
Total	21,923		22,799		65,260		65,686		21,806		21,586
Reconciliation of segment to consolidated total:
Amortization of debt issuance costs and original issue discount	863		1,079		3,022		3,403		525		1,079
Consolidated total	$	22,786	$	23,878	$	68,282	$	69,089	$	22,331	$	22,665


	Accounts Receivable						Identifiable Assets				Accounts Receivable						Identifiable Assets
	September 30,			December 31,			September 30,		December 31,		March 31,			December 31,			March 31,		December 31,
(in thousands)	2019			2018			2019 ⁽¹⁾		2018 ⁽¹⁾		2020			2019			2020 ⁽¹⁾		2019 ⁽¹⁾
5.11 Tactical	$	48,408		$	52,069		$	363,933	$	319,583
5.11											$	50,869		$	49,543		$	356,614	$	357,292
Ergobaby	10,549			11,361			92,850		100,679		9,573			10,460			90,969		91,798
Liberty	15,320			10,416			40,606		27,881		14,616			13,574			35,600		38,558
Velocity Outdoor	29,300			21,881			204,321		209,398		21,959			20,290			186,533		192,288
ACI	6,339			9,193			26,297		13,407		7,969			8,318			27,617		24,408
Arnold	18,572			16,298			74,223		66,744		19,800			19,043			72,109		72,650
Foam Fabricators	29,903			23,848			158,749		155,504		24,290			24,455			154,206		156,914
Sterno	77,905			72,361			262,135		253,637		49,134			60,522			251,830		263,530
Allowance for doubtful accounts	(14,873		)	(11,882		)	—		—		(14,107		)	(14,800		)	—		—
Total	221,423			205,545			1,223,114		1,146,833		184,103			191,405			1,175,478		1,197,438
Reconciliation of segment to consolidated total:
Corporate and other identifiable assets	—			—			251,664		8,357		—			—			247,397		64,531
Assets of discontinued operations	—			—			—		540,485		—			—			—		—
Total	$	221,423		$	205,545		$	1,474,778	$	1,695,675	$	184,103		$	191,405		$	1,422,875	$	1,261,969


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

Note FE — Property, Plant and Equipment and Inventory

Property, plant and equipment

Property, plant and equipment is comprised of the following at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Machinery and equipment	$	182,889		$	174,983		$	193,916		$	191,897
Furniture, fixtures and other	33,052			29,096			34,810			36,604
Leasehold improvements	38,181			34,786			41,311			40,851
Buildings and land	9,976			9,818			10,005			10,559
Construction in process	11,509			8,869			11,002			7,992
	275,607			257,552			291,044			287,903
Less: accumulated depreciation	(133,316		)	(110,951		)	(147,245		)	(141,475		)
Total	$	142,291		$	146,601		$	143,799		$	146,428

Depreciation expense was ~~$8.4~~$8.3 million and ~~$24.6~~$8.0 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020and March 31, 2019, ~~and $7.9 million and $22.8 million for the three and nine months ended September 30, 2018,~~ respectively.

Inventory

Inventory is comprised of the following at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Raw materials	$	62,647		$	60,788		$	60,223		$	59,888
Work-in-process	16,095			12,915			14,950			14,318
Finished goods	273,582			253,982			249,707			262,352
Less: obsolescence reserve	(20,103		)	(20,248		)	(19,244		)	(19,252		)
Total	$	332,221		$	307,437		$	305,636		$	317,306

Note GF — Goodwill and Other Intangible Assets

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

Goodwill

2020 Annual Impairment Testing

The ~~Arnold business previously comprised 3~~Company uses a qualitative approach to test goodwill for impairment by first assessing qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform quantitative goodwill impairment testing. We determined that the Ergobaby, Foam Fabricators and Velocity reporting units ~~when it was acquired in March 2012, but as a result~~required additional quantitative testing because we could not conclude that the fair value of ~~changes implemented by Arnold management during 2016 and 2017, the Company reassessed~~ the reporting ~~units at Arnold as of the annual impairment testing date in 2018. After evaluating changes in the operation of~~unit exceeded its carrying value based on qualitative factors alone. For the reporting units that ~~led to increased integration and altered how~~were tested qualitatively for the ~~financial~~2020 annual impairment testing, the results of the ~~Arnold operating segment~~qualitative analysis indicated that it is more likely than not that the fair value exceeded the carrying value of these reporting units.

The quantitative tests of Ergobaby, Foam Fabricators and Velocity were ~~assessed by Arnold management,~~performed using an income approach to determine the ~~Company determined that~~fair value of the ~~previously identified~~ reporting ~~units no longer operate~~units. For Ergobaby, the discount rate used in the ~~same manner as they did when~~income approach was 15.9% and the ~~Company acquired Arnold. As a result,~~results of the ~~separate Arnold reporting units were determined to only comprise one~~quantitative impairment testing indicated that the fair value of the Ergobaby reporting unit atexceeded the ~~Arnold operating segment level as of March 31, 2018. As part~~carrying value by 14.0%. For Foam Fabricators, the discount rate used in the income approach was 13.3%, and the results of the ~~exercise~~quantitative impairment testing indicated that the fair value of ~~combining~~ the ~~separate Arnold reporting units into one~~Foam Fabricators reporting unit exceeded the ~~Company performed "before"~~carrying value by 3.8%. For Velocity, the discount rate used in the income approach was 12.8%, and ~~"after" goodwill~~the results of the quantitative impairment testing ~~whereby we performed~~indicated that the ~~annual impairment testing for each~~fair value of the existing reporting units of Arnold and then subsequent to the completion of the annual impairment testing of the separate reporting units, we performed a quantitative impairment test of the Arnold operating segment, which will represent theVelocity reporting unit ~~for future impairment tests.~~

~~Goodwill~~exceeded the carrying value by 16.4%.

2019 Interim Impairment Testing

Velocity Outdoor

The Company performed interim quantitative impairment testing of Velocity Outdoor at September 30, 2019. As a result of operating results below forecasts in the current period as well as a re-forecast of the Velocity business in which planned earnings and revenue fell below the forecasts of prior periods, the Company determined that a triggering event occurred in the third quarter of 2019. The Company used an income approach for the impairment test, whereby we estimate the fair value of the reporting unit based on the present value of future cash flows. Cash flow projections are based on management's estimate of revenue growth rates and operating margins, and take into consideration industry and market conditions as well as company specific economic factors. The Company used a weighted average cost of capital of 12.2% in the income approach. The discount rate used was based on the weighted average cost of capital adjusted for the relevant risk associated with business specific characteristics and Velocity's ability to execute on the projected cash flows. Based on the results of the impairment test, the fair value of Velocity did not exceed the carrying value, indicating that the goodwill at Velocity iswas impaired. The difference between the carrying value and fair value of the Velocity business was ~~$33.4~~$32.9 million, which the Company ~~has~~ recorded as impairment expense asin the consolidated statement of ~~September 30,~~operations for the year ended December 31, 2019. ~~The Company expects to finalize the impairment test during the fourth quarter of 2019.~~

2019 Annual Impairment Testing

The Company uses a qualitative approach to test goodwill for impairment by first assessing qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform quantitative goodwill impairment testing. All of the Company's reporting units except Liberty were tested qualitatively at March 31, 2019. We determined that the Liberty reporting unit required additional quantitative testing because we could not conclude that the fair value of the reporting unit exceeded its carrying value based on qualitative factors alone. We used an income approach and market approach for the quantitative impairment test that was performed of the Liberty business at March 31, 2019, with equal weighting assigned to each. The discount rate used in the income approach was 14.8%. The results of the quantitative impairment testing indicated that the fair value of the Liberty reporting unit exceeded the carrying value. For the reporting units that were tested qualitatively for the 2019 annual impairment testing, the results of the qualitative analysis indicated that it is more likely than not that the fair value exceeded their carrying value.

~~2018 Annual Impairment Testing~~

For the reporting units that were tested qualitatively for the 2018 annual impairment testing, the results of the qualitative analysis indicated that the fair value exceeded their carrying value. At March 31, 2018, we determined that the Flexmag reporting unit of Arnold required additional quantitative testing because we could not conclude that the fair value of the reporting unit exceeded its carrying value based on qualitative factors alone. For the quantitative impairment test of Flexmag, we estimated the fair value of the reporting unit using an income approach, whereby we estimate the fair value of the reporting unit based on the present value of future cash flows. Cash flow projections are based on management's estimate of revenue growth rates and operating margins and take into consideration industry and market conditions as well as company and reporting unit specific economic conditions. The discount rate used is based on the weighted average cost of capital adjusted for the relevant risk associated with the business and the uncertainty associated with the reporting unit's ability to execute on the projected cash flows. The discount rate used in the income approach for Flexmag was 12.4%.

For the reporting unit change at Arnold, a quantitative impairment test was performed of the Arnold business at March 31, 2018 using an income approach. The discount rate used in the income approach was 12.6%. The results of the quantitative impairment testing indicated that the fair value of the Arnold reporting unit exceeded the carrying value.

A summary of the net carrying value of goodwill at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, is as follows (in thousands):


	Nine months ended September 30, 2019			Year ended December 31, 2018			Three months ended March 31, 2020			Year ended December 31, 2019
Goodwill - gross carrying amount	$	502,553		$	502,268		$	496,264		$	496,264
Accumulated impairment losses	(64,534		)	(31,153		)	(57,745		)	(57,745		)
Goodwill - net carrying amount	$	438,019		$	471,115		$	438,519		$	438,519

The following is a reconciliation of the change in the carrying value of goodwill for the ~~nine~~three months ended

~~September 30, 2019~~ March 31, 2020 by operating segment (in thousands):


	Balance at January 1, 2019		Acquisitions		Goodwill Impairment			Other		Balance at September 30, 2019		Balance at January 1, 2020		Acquisitions		Goodwill Impairment		Other		Balance at March 31, 2020
5.11	$	92,966	$	—	$	—		$	—	$	92,966	$	92,966	$	—	$	—	$	—	$	92,966
Ergobaby	61,031		—		—			—		61,031		61,031		—		—		—		61,031
Liberty	32,828		—		—			—		32,828		32,828		—		—		—		32,828
Velocity Outdoor	62,675		285		(33,381		)	—		29,579		30,079		—		—		—		30,079
ACI	58,019		—		—			—		58,019		58,019		—		—		—		58,019
Arnold	26,903		—		—			—		26,903		26,903		—		—		—		26,903
Foam Fabricators	72,708		—		—			—		72,708		72,708		—		—		—		72,708
Sterno	55,336		—		—			—		55,336		55,336		—		—		—		55,336
Corporate ⁽¹⁾	8,649		—		—			—		8,649		8,649		—		—		—		8,649
Total	$	471,115	$	285	$	(33,381	)	$	—	$	438,019	$	438,519	$	—	$	—	$	—	$	438,519


⁽¹⁾	Represents goodwill resulting from purchase accounting adjustments not "pushed down" to the ACI segment. This amount is allocated back to the ACI segment for purposes of goodwill impairment testing.

Long lived assets

Annual indefinite lived impairment testing

The Company used a qualitative approach to test indefinite lived intangible assets for impairment by first assessing qualitative factors to determine whether it is more-likely-than-not that the fair value of an indefinite lived intangible asset is impaired as a basis for determining whether it is necessary to perform quantitative impairment testing. The Company evaluated the qualitative factors of each indefinite lived intangible asset in connection with the annual impairment testing for ~~2019~~2020 and ~~2018.~~2019. Results of the qualitative analysis indicate that it is more likely than not that the fair value of the reporting units that maintain indefinite lived intangible assets exceeded the carrying value. The Ergobaby and Liberty reporting units have indefinite lived trade names that were tested in conjunction with the goodwill impairment tests at March 31, 2020 and March 31, 2019, respectively. The results of the quantitative impairment testing indicated that the trade names were not impaired.

Other intangible assets are comprised of the following at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	September 30, 2019							December 31, 2018							March 31, 2020							December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	462,686	$	(146,606	)	$	316,080	$	462,686	$	(120,786	)	$	341,900	$	462,686	$	(163,796	)	$	298,890	$	462,686	$	(155,200	)	$	307,486
Technology and patents	79,972		(27,422		)	52,550		79,646		(23,409		)	56,237		80,370		(30,076		)	50,294		80,082		(28,748		)	51,334
Trade names, subject to amortization	189,180		(43,006		)	146,174		189,056		(32,506		)	156,550		189,183		(50,001		)	139,182		189,183		(46,507		)	142,676
Licensing and non-compete agreements	7,515		(6,950		)	565		7,515		(6,655		)	860		7,515		(7,136		)	379		7,515		(7,050		)	465
Distributor relations and other	726		(726		)	—		726		(726		)	—		726		(726		)	—		726		(726		)	—
Total	740,079		(224,710		)	515,369		739,629		(184,082		)	555,547		740,480		(251,735		)	488,745		740,192		(238,231		)	501,961
Trade names, not subject to amortization	59,985		—			59,985		60,045		—			60,045		59,985		—			59,985		59,985		—			59,985
Total intangibles, net	$	800,064	$	(224,710	)	$	575,354	$	799,674	$	(184,082	)	$	615,592	$	800,465	$	(251,735	)	$	548,730	$	800,177	$	(238,231	)	$	561,946

Amortization expense related to intangible assets was $13.5 million and ~~$12.8~~$13.6 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $40.6 million and $35.5 million for the nine months ended September 30, 2019 and 2018,~~ respectively. Estimated charges to amortization expense of intangible assets for the remainder of ~~2019~~2020 and the next four years, is as follows (in thousands):


2019		2020		2021		2022		2023
2020										2020	2021		2022		2023		2024

$	13,590	$	54,078	$	53,632	$	52,001	$	51,603	40,566	$	53,645	$	52,013	$	51,616	$	50,525

Note HG — Warranties

The Company’s Ergobaby, Liberty and Velocity Outdoor operating segments estimate their exposure to warranty claims based on both current and historical product sales data and warranty costs incurred. The Company assesses the adequacy of its recorded warranty liability quarterly and adjusts the amount as necessary. Warranty liability is included in accrued expenses in the accompanying consolidated balance sheets. A reconciliation of the change in the carrying value of the Company’s warranty liability for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and the year ended December 31, ~~2018~~2019 is as follows (in thousands):


Warranty liability	Nine months ended September 30, 2019			Year ended December 31, 2018			Three months ended March 31, 2020			Year ended December 31, 2019

Beginning balance	$	1,624		$	2,197		$	1,583		$	1,624
Provision for warranties issued during the period	2,185			3,531			406			2,238
Fulfillment of warranty obligations	(2,152		)	(4,258		)	(626		)	(2,279		)
Other ⁽¹⁾	—			154
Ending balance	$	1,657		$	1,624		$	1,363		$	1,583

⁽¹⁾~~Represents the warranty liability recorded in relation to acquisitions. Warranty liabilities of acquisitions are recorded at fair value as of the date of acquisition.~~

Note IH — Debt

2018 Credit Facility

On April 18, 2018, the Company entered into an Amended and Restated Credit Agreement (the "2018 Credit Facility") to amend and restate the 2014 Credit Facility, originally dated as of June 6, 2014 (as previously amended) among the Company, the lenders from time to time party thereto (the “Lenders”), and Bank of America, N.A., as Administrative Agent. The 2018 Credit Facility is secured by all of the assets of the Company, including all of its equity interests in, and loans to, its consolidated subsidiaries. The 2018 Credit Facility provides for (i) revolving loans, swing line loans and letters of credit (the “2018 Revolving Credit Facility”) up to a maximum aggregate amount of $600 million, ~~(the "2018 Revolving Loan Commitment"),~~ and (ii) a $500 million term loan (the “2018 Term Loan”). The 2018 Credit Facility also permits the Company, prior to the applicable maturity date, to increase the revolving loan commitment and/or obtain additional term loans in an aggregate amount of up to $250 million (the “Incremental Loans”), subject to certain restrictions and conditions.

2018 Revolving Credit Facility

All amounts outstanding under the 2018 Revolving Credit Facility will become due on April 18, 2023, which is the maturity date of loans advanced under the 2018 Revolving Credit Facility. The Company may borrow, prepay and reborrow principal under the 2018 Revolving Credit Facility from time to time during its term.

The 2018 Credit Facility also permits the Company, prior to the applicable maturity date, to increase the 2018 Revolving Loan Commitment and/or obtain additional term loans in an aggregate amount of up to $250 million (the “Incremental Loans”), subject to certain restrictions and conditions. Under the 2018 Revolving Credit Facility, an aggregate amount of up to $100 million in letters of credit may be issued, as well as swing line loans of up to $25 million outstanding at one time. The issuance of such letters of credit and the making of any swing line loan would reduce the amount available under the 2018 Revolving Credit Facility.

2018 Term Loan

The 2018 Term Loan ~~requires~~was issued at an original issuance discount of 99.75%. The 2018 Term Loan required quarterly payments of $1.25 million commencing June 30, 2018, with a final payment of all remaining principal and interest due on April 18, 2025, the maturity date of the 2018 Term Loan. ~~The 2018 Term Loan was issued at an original issuance discount of 99.75%.~~ In July 2019, the Company repaid approximately $193.8 million of the 2018 Term Loan using a portion of the proceeds received from the sale of Clean ~~Earth.~~

~~2014 Credit Facility~~

~~The 2014 Credit Facility, as amended, provided for (i) a revolving credit facility of $550~~Earth, and in November 2019, the Company repaid the remaining $298.8 million ~~(ii) a $325 million term loan (the "2014~~balance due under the 2018 Term ~~Loan"), and (iii) a $250 million incremental term loan. The 2018 Credit Facility amended and restated the 2014 Credit Facility.~~

Loan.

Senior Notes

On April 18, 2018, the Company consummated the issuance and sale of $400 million aggregate principal amount of its 8.000% Senior Notes due 2026 (the “Notes” or "Senior Notes") offered pursuant to a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act, and to non-U.S. persons under Regulation S under the Securities Act. The Company used the net proceeds from the sale of the Notes to repay debt under its existing credit facilities in connection with a concurrent refinancing transaction described above. The Notes were issued pursuant to an indenture, dated as of April 18, 2018 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee.

The Notes bear interest at the rate of 8.000% per annum and will mature on May 1, 2026. Interest on the Notes is payable in cash on May 1st and November 1st of each year, beginning on November 1, 2018. The Notes are general senior unsecured obligations of the Company and are not guaranteed by the subsidiaries through which the Company currently conducts substantially all of its operations. The Notes rank equal in right of payment with all of the Company’s existing and future senior unsecured indebtedness, and rank senior in right of payment to all of the Company’s future subordinated indebtedness, if any. The Notes will be effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, including the indebtedness under the Company’s credit facilities described above.

The Indenture contains several restrictive covenants including, but not limited to, limitations on the following: (i) the incurrence of additional indebtedness, (ii) restricted payments, (iii) dividends and other payments affecting restricted subsidiaries, (iv) the issuance of preferred stock of restricted subsidiaries, (v) transactions with affiliates, (vi) asset sales and mergers and consolidations, (vii) future subsidiary guarantees and (viii) liens, subject in each case to certain exceptions.

The following table provides the Company’s debt holdings at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Senior Notes	$	400,000		$	400,000		$	400,000		$	400,000
Revolving Credit Facility	—			228,000			200,000			—
Term Loan	298,750			496,250
Less: Unamortized discounts and debt issuance costs	(13,237		)	(20,379		)	(5,336		)	(5,555		)
Total debt	$	685,513		$	1,103,871
Less: Current portion, term loan facilities	(5,000		)	(5,000		)
Long term debt	$	680,513		$	1,098,871		$	594,664		$	394,445

Net availability under the 2018 Revolving Credit Facility was approximately ~~$596.4~~$396.4 million at ~~September 30, 2019.~~March 31, 2020. Letters of credit outstanding at ~~September 30, 2019~~March 31, 2020 totaled approximately $3.6 million. At ~~September 30, 2019,~~March 31, 2020, the Company was in compliance with all covenants as defined in the 2018 Credit Facility.

At September 30, 2019, the carrying value of the principal under the Company’s outstanding Term Loan, including the current portion, was $298.8 million, which approximates fair value because it has a variable interest rate that reflects market changes in interest rates and changes in the Company's net leverage ratio. The estimated fair value of the outstanding 2018 Term Loan is based on quoted market prices for similar debt issues and is, therefore, classified as Level 2 in the fair value hierarchy.

The Company's Senior Notes consisted of the following carrying value and estimated fair value (in thousands):

Fair Value Hierarchy Level September 30, 2019
Maturity Date Rate Carrying Value Fair Value
Senior Notes May 1, 2026 8.000 % 2 400,000
426,000

Fair Value Hierarchy Level

March 31, 2020

Maturity Date

Rate

Carrying Value

Fair Value

Senior Notes

May 1, 2026

8.000

400,000

384,000

Debt Issuance Costs

Deferred debt issuance costs represent the costs associated with the issuance of the Company's financing arrangements. In connection with the repayment of ~~$193.8 million of~~ the 2018 Term Loan, ~~in July 2019,~~ the Company ~~expensed $3.7~~wrote-off $8.9 million in ~~debt issuance~~deferred financing costs ~~and $1.4 million in original issue discount, representing a proportional amount of the Company’s debt issuance costs related to~~associated with the 2018 Term ~~Loan.~~

Loan and $3.4 million associated with the original issue discount.

Since the Company can borrow, repay and reborrow principal under the 2018 Revolving Credit Facility, the debt issuance costs associated with the ~~2014 and~~ 2018 Revolving Credit Facility ~~of $4.3 million and $5.3 million at September 30, 2019 and December 31, 2018, respectively,~~ have been classified as other non-current assets in the accompanying consolidated balance ~~sheets.~~sheet. The ~~original issue discount and the~~ debt issuance costs associated with the ~~2018 Term Loan and~~ Senior Notes are classified as a reduction of long-term debt in the accompanying consolidated balance ~~sheets.~~sheet.

~~Interest Rate Swap~~

In September 2014, the Company purchased an interest rate swap (the "Swap") with a notional amount of $220 million. The Swap is effective April 1, 2016 through June 6, 2021, the original termination date of the 2014 Term Loan. The agreement requires the Company to pay interest on the notional amount at the rate of 2.97% in exchange for the three-month LIBOR rate. At September 30, 2019 and December 31, 2018, the Swap had a fair value loss of $4.9 million and $2.1 million, respectively, principally reflecting the present value of future payments and receipts under the agreement.

The following table ~~reflects the classification of the Company's Swap on the consolidated balance sheets~~summarizes debt issuance costs at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019, and the balance sheet classification in each of the periods presents (in thousands):

September 30, 2019 December 31, 2018
Other current liabilities $ 2,594
$ 582
Other noncurrent liabilities 2,289
1,490
Total fair value $ 4,883
$ 2,072



	March 31, 2020			December 31, 2019
Deferred debt issuance costs	$	13,252		$	13,252
Accumulated amortization	(4,192		)	(3,667		)
Deferred debt issuance costs, net	$	9,060		$	9,585

Balance sheet classification:
Other noncurrent assets	$	3,724		$	4,030
Long-term debt	5,336			5,555
	$	9,060		$	9,585

Note JI — Stockholders’ Equity

Trust Common Shares

The Trust is authorized to issue 500,000,000 Trust shares and the Company is authorized to issue a corresponding number of LLC interests. The Company will at all times have the identical number of LLC interests outstanding as Trust shares. Each Trust share represents an undivided beneficial interest in the Trust, and each Trust share is entitled to one vote per share on any matter with respect to which members of the Company are entitled to vote.

Trust Preferred Shares

The Trust is authorized to issue up to 50,000,000 Trust preferred shares and the Company is authorized to issue a corresponding number of trust preferred interests.

Series C Preferred Shares

On November 20, 2019, the Trust issued 4,000,000 7.875% Series C Preferred Shares(the "Series C Preferred Shares") with a liquidation preference of $25.00 per share, and on December 2, 2019, the Trust issued 600,000 of the Series C Preferred Shares which were sold pursuant to an option to purchase additional shares by the underwriters. Total proceeds from the issuance of the Series C Preferred Shares were $115.0 million, or $111.0 millionnet of underwriters' discount and issuance costs. Distributions on the Series C Preferred Shares will be payable quarterly in arrears, when and as declared by the Company's board of directors on January 30, April 30, July 30, and October 30 of each year, beginning on January 30, 2020, at a rate per annum of 7.875%. Distributions on the Series C Preferred Shares are cumulative and at March 31, 2020, $1.5 million of Series C distributions are accumulated and unpaid. Unless full cumulative distributions on the Series C Preferred Shares have been or contemporaneously are declared and set apart for payment of the Series C Preferred Shares for all past distribution periods, no distribution may be declared or paid for payment on the Trust common shares. The Series C Preferred Shares are not convertible into

Trust common shares and have no voting rights, except in limited circumstances as provided for in the share designation for the Series C Preferred Shares. The Series C Preferred Shares may be redeemed at the Company's option, in whole or in part, at any time after January 30, 2025, at a price of $25.00 per share, plus any accumulated and unpaid distributions (thereon whether authorized or declared) to, but excluding, the redemption date. Holders of Series C Preferred Shares will have no right to require the redemption of the Series C Preferred Shares and there is no maturity date.

Series B Preferred Shares

On March 13, 2018, the Trust issued 4,000,000 7.875% Series B Trust Preferred Shares (the "Series B Preferred Shares") with a liquidation preference of $25.00 per share, for gross proceeds of $100.0 million, or $96.5 million net of underwriters' discount and issuance costs. Distributions on the Series B Preferred Shares will be payable quarterly in arrears, when and as declared by the Company's board of directors on January 30, April 30, July 30, and October 30 of each year, beginning on July 30, 2018, at a rate per annum of 7.875%. Distributions on the Series B Preferred Shares are ~~cumulative.~~cumulative and at March 31, 2020, $1.3 million of Series B distributions are accumulated and unpaid. Unless full cumulative distributions on the Series B Preferred Shares have been or contemporaneously are declared and set apart for payment of the Series B Preferred Shares for all past distribution periods, no distribution may be declared or paid for payment on the Trust common shares. The Series B Preferred Shares are not convertible into Trust common shares and have no voting rights, except in limited circumstances as provided for in the share designation for the preferred shares. The Series B Preferred Shares may be redeemed at the Company's option, in whole or in part, at any time after April 30, 2028, at a price of $25.00 per share, plus any accumulated and unpaid distributions (thereon whether authorized or declared) to, but excluding, the redemption date. Holders of Series B Preferred Shares will have no right to require the redemption of the Series B Preferred Shares and there is no maturity date.

Series A Preferred Shares

On June 28, 2017, the Trust issued 4,000,000 7.250% Series A Trust Preferred Shares (the "Series A Preferred Shares") with a liquidation preference of $25.00 per share, for gross proceeds of $100.0 million, or $96.4 million net of underwriters' discount and issuance costs. When, and if declared by the Company's board of directors, distribution on the Series A Preferred Shares will be payable quarterly on January 30, April 30, July 30, and October 30 of each year, beginning on October 30, 2017, at a rate per annum of 7.250%. Distributions on the Series A Preferred Shares

are discretionary and non-cumulative. The Company has no obligation to pay distributions for a quarterly distribution period if the board of directors does not declare the distribution before the scheduled record of date for the period, whether or not distributions are paid for any subsequent distribution periods with respect to the Series A Preferred Shares, or the Trust common shares. If the Company's board of directors does not declare a distribution for the Series A Preferred Shares for a quarterly distribution period, during the remainder of that quarterly distribution period the Company cannot declare or pay distributions on the Trust common shares. The Series A Preferred Shares may be redeemed at the Company's option, in whole or in part, at any time after July 30, 2022, at a price of $25.00 per share, plus any declared and unpaid distributions. Holders of Series A Preferred Shares will have no right to require the redemption of the Series A Preferred Shares and there is no maturity date. The Series A Preferred Shares are not convertible into Trust common shares and have no voting rights, except in limited circumstances as provided for in the share designation for the preferred shares.

Profit Allocation Interests

The Allocation Interests represent the original equity interest in the Company. The holders of the Allocation Interests ("Holders") are entitled to receive distributions pursuant to a profit allocation formula upon the occurrence of certain events. The distributions of the profit allocation are paid upon the occurrence of the sale of a material amount of capital stock or assets of one of the Company’s businesses ("Sale Event") or, at the option of the Holders, at each five-year anniversary date of the acquisition of one of the Company’s businesses ("Holding Event"). The Company records distributions of the profit allocation to the Holders upon occurrence of a Sale Event or Holding Event as distributions declared on Allocation Interests to stockholders’ equity when they are approved by the Company’s board of directors.

Holding Event

The five-year anniversary of the acquisition of Sterno Products occurred in October 2019 which represented a Holding Event. The Company declared and paid a distribution to the Allocation Member of $9.1 million in February 2020. The ten-year anniversary of Liberty occurred in March 2020 which represented a Holding Event. The Holders elected to defer the distribution of $3.3 million until after the end of 2020.

Sale Events

The ~~sale~~sales of Manitoba Harvest in February 2019 and Clean Earth in June 2019 each qualified as a Sale Event under the Company's LLC Agreement. During the second quarter of 2019, the Company declared and paid a distribution to the Allocation Member of ~~$7.7~~$8.0 million related to the sale of Manitoba ~~Harvest.~~Harvest and working capital settlements from prior Sale Events. The profit allocation distribution was calculated based on the portion of the gain on sale related to the Closing Date Consideration, less the loss on sale of shares that were received as part of the Closing Consideration. An additional profit allocation distribution of $8.6 million will be paid to the Allocation Interest Holders in the fourth quarter of 2019 related to the receipt of the Deferred Consideration from Manitoba Harvest. The Company will also pay an additional $0.3 million in distributions to the Allocation Member related to working capital settlements from prior Sale Events.

~~The sale of Clean Earth in June 2019 qualified as a Sale Event under the Company's LLC Agreement.~~ During the third quarter of 2019, the Company declared and paid a distribution to the Allocation Member of $43.3 ~~million. This distribution was paid in~~million related to the ~~third~~sale of Clean Earth. During the fourth quarter of ~~2019.~~2019, the Company declared and paid a distribution to the Allocation Member of $9.1 million related to the Deferred Consideration from the Manitoba Harvest sale and the working capital settlement received from the sale of Clean Earth.

Reconciliation of net income (loss) available to common shares of Holdings

The following table reconciles net loss attributable to Holdings to net loss attributable to the common shares of Holdings (in thousands):


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Net loss from continuing operations attributable to Holdings	$	(29,824	)	$	(1,345	)	$	(49,313	)	$	(13,893	)

Net income (loss) from continuing operations attributable to Holdings													$	3,665		$	(14,296	)
Less: Distributions paid - Allocation Interests	43,313			—			51,296			—			9,087			—
Less: Distributions paid - Preferred Shares	3,781			4,773			11,344			8,398			5,542			3,781
Less: Accrued distributions - Preferred Shares	1,334			1,619			1,334			1,619			2,869			1,334
Net loss from continuing operations attributable to common shares of Holdings	$	(78,252	)	$	(7,737	)	$	(113,287	)	$	(23,910	)	$	(13,833	)	$	(19,411	)

Earnings per share

The Company calculates basic and diluted earnings per share using the two-class method which requires the Company to allocate to participating securities that have rights to earnings that otherwise would have been available only to Trust shareholders as a separate class of securities in calculating earnings per share. The Allocation Interests are considered participating securities that contain participating rights to receive profit allocations upon the occurrence of a Holding Event or Sale Event. The calculation of basic and diluted earnings per share for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ reflects the incremental increase during the period in the profit allocation distribution to Holders related to Holding Events.

Basic and diluted earnings per share for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ attributable to the common shares of Holdings is calculated as follows (in thousands, except per share data):


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Loss from continuing operations attributable to common shares of Holdings	$	(78,252	)	$	(7,737	)	$	(113,287	)	$	(23,910	)	$	(13,833	)	$	(19,411	)
Less: Effect of contribution based profit - Holding Event	1,709			2,004			3,562			3,510			1,517			981
Loss from continuing operations attributable to common shares of Holdings	$	(79,961	)	$	(9,741	)	$	(116,849	)	$	(27,420	)	$	(15,350	)	$	(20,392	)

Income from discontinued operations attributable to Holdings	$	2,039		$	6,071		$	347,370		$	15,370		$	—		$	123,604
Less: Effect of contribution based profit - Holding Event	—			400			—			209			—			—
Income from discontinued operations attributable to common shares of Holdings	$	2,039		$	5,671		$	347,370		$	15,161		$	—		$	123,604

Basic and diluted weighted average common shares outstanding	59,900			59,900			59,900			59,900			59,900			59,900

Basic and fully diluted income (loss) per common share attributable to Holdings
Continuing operations	$	(1.33	)	$	(0.16	)	$	(1.95	)	$	(0.45	)	$	(0.26	)	$	(0.34	)
Discontinued operations	0.03			0.09			5.80			0.25			—			2.06
	$	(1.30	)	$	(0.07	)	$	3.85		$	(0.20	)	$	(0.26	)	$	1.72

Distributions

The following table summarizes information related to our quarterly cash distributions on our Trust common and preferred shares (in thousands, except per share data):


Period	Cash Distribution per Share		Total Cash Distributions		Record Date	Payment Date	Cash Distribution per Share		Total Cash Distributions		Record Date	Payment Date

Trust Common Shares:
July 1, 2019 - September 30, 2019 ⁽¹⁾	$	0.36	$	21,564	October 17, 2019	October 24, 2019
January 1, 2020 - March 31, 2020 ⁽¹⁾							$	0.36	$	21,564	April 16, 2020	April 23, 2020
October 1, 2019 - December 31, 2019							$	0.36	$	21,564	January 16, 2020	January 23, 2020
July 1, 2019 - September 30, 2019							$	0.36	$	21,564	October 17, 2019	October 24, 2019
April 1, 2019 - June 30, 2019	$	0.36	$	21,564	July 18, 2019	July 25, 2019	$	0.36	$	21,564	July 18, 2019	July 25, 2019
January 1, 2019 - March 31, 2019	$	0.36	$	21,564	April 18, 2019	April 25, 2019	$	0.36	$	21,564	April 18, 2019	April 25, 2019
October 1, 2018 - December 31, 2018	$	0.36	$	21,564	January 17, 2019	January 24, 2019	$	0.36	$	21,564	January 17, 2019	January 24, 2019
July 1, 2018 - September 30, 2018	$	0.36	$	21,564	October 18, 2018	October 25, 2018
April 1, 2018 - June 30, 2018	$	0.36	$	21,564	July 19, 2018	July 26, 2018
January 1, 2018 - March 31, 2018	$	0.36	$	21,564	April 19, 2018	April 26, 2018
October 1, 2017 - December 31, 2017	$	0.36	$	21,564	January 19, 2018	January 25, 2018

Series A Preferred Shares:
July 30, 2019 - October 29, 2019 ⁽¹⁾	$	0.453125	$	1,813	October 15, 2019	October 30, 2019
January 30, 2020 - April 29, 2020 ⁽¹⁾							$	0.453125	$	1,813	April 15, 2020	April 30, 2020
October 30, 2019 - January 29, 2020							$	0.453125	$	1,813	January 15, 2020	January 30, 2020
July 30, 2019 - October 29, 2019							$	0.453125	$	1,813	October 15, 2019	October 30, 2019
April 30, 2019 - July 29, 2019	$	0.453125	$	1,813	July 15, 2019	July 30, 2019	$	0.453125	$	1,813	July 15, 2019	July 30, 2019
January 30, 2019 - April 29, 2019	$	0.453125	$	1,813	April 15, 2019	April 30, 2019	$	0.453125	$	1,813	April 15, 2019	April 30, 2019
October 30, 2018 - January 29, 2019	$	0.453125	$	1,813	January 15, 2019	January 30, 2019	$	0.453125	$	1,813	January 15, 2019	January 30, 2019
July 30, 2018 - October 29, 2018	$	0.453125	$	1,813	October 15, 2018	October 30, 2018
April 30, 2018 - July 29, 2018	$	0.453125	$	1,813	July 16, 2018	July 30, 2018
January 30, 2018 - April 29, 2018	$	0.453125	$	1,813	April 15, 2018	April 30, 2018
October 30, 2017 - January 29, 2018	$	0.453125	$	1,813	January 15, 2018	January 30, 2018

Series B Preferred Shares:
July 30, 2019 - October 29, 2019 ⁽¹⁾	$	0.4921875	$	1,969	October 15, 2019	October 30, 2019
January 30, 2020 - April 29, 2020 ⁽¹⁾							$	0.4921875	$	1,969	April 15, 2020	April 30, 2020
October 30, 2019 - January 29, 2020							$	0.4921875	$	1,969	January 15, 2020	January 30, 2020
July 30, 2019 - October 29, 2019							$	0.4921875	$	1,969	October 15, 2019	October 30, 2019
April 30, 2019 - July 29, 2019	$	0.4921875	$	1,969	July 15, 2019	July 30, 2019	$	0.4921875	$	1,969	July 15, 2019	July 30, 2019
January 30, 2019 - April 29, 2019	$	0.4921875	$	1,969	April 15, 2019	April 30, 2019	$	0.4921875	$	1,969	April 15, 2019	April 30, 2019
October 30, 2018 - January 29, 2019	$	0.4921875	$	1,969	January 15, 2019	January 30, 2019	$	0.4921875	$	1,969	January 15, 2019	January 30, 2019
July 30, 2018 - October 29, 2018	$	0.4921875	$	1,969	October 15, 2018	October 30, 2018
March 13, 2018 - July 29, 2018	$	0.74	$	2,960	July 16, 2018	July 30, 2018

Series C Preferred Shares:
January 30, 2020 - April 29, 2020 ⁽¹⁾							$	0.4921875	$	2,264	April 15, 2020	April 30, 2020
November 20, 2019 - January 29, 2020							$	0.38281	$	1,531	January 15, 2020	January 30, 2020

⁽¹⁾This distribution was declared on ~~October 3, 2019.~~April 2, 2020.

Note KJ — Noncontrolling Interest

Noncontrolling interest represents the portion of the Company’s majority owned subsidiary’s net income (loss) and equity that is owned by noncontrolling shareholders. The following tables reflect the Company’s ownership percentage of its majority owned operating segments and related noncontrolling interest balances as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:


	% Ownership ⁽¹⁾ September 30, 2019		% Ownership ⁽¹⁾ December 31, 2018		% Ownership ⁽¹⁾ March 31, 2020		% Ownership ⁽¹⁾ December 31, 2019
	Primary	Fully Diluted	Primary	Fully Diluted	Primary	Fully Diluted	Primary	Fully Diluted
5.11 Tactical	97.5	88.9	97.5	88.7
5.11					97.6	88.9	97.6	88.9
Ergobaby	81.9	75.8	81.9	76.4	81.9	75.8	81.9	75.8
Liberty	91.2	88.4	88.6	85.2	91.2	86.0	91.2	86.0
Velocity Outdoor	99.2	93.0	99.2	91.0	99.3	87.5	99.3	93.9
ACI	69.4	65.4	69.4	69.2	69.4	65.3	69.4	65.4
Arnold	96.7	80.2	96.7	79.4	96.7	81.4	96.7	80.2
Foam Fabricators	100.0	91.5	100.0	91.5	100.0	91.5	100.0	91.5
Sterno	100.0	88.5	100.0	88.9	100.0	87.5	100.0	88.5


⁽¹⁾	The principal difference between primary and diluted percentages of our operating segments is due to stock option issuances of operating segment stock to management of the respective businesses.


	Noncontrolling Interest Balances						Noncontrolling Interest Balances
(in thousands)	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
5.11 Tactical	$	11,588		$	9,873
5.11							$	12,613		$	12,056
Ergobaby	26,729			25,362			27,407			27,036
Liberty	2,777			3,342			3,085			2,936
Velocity Outdoor	2,288			2,524			3,130			2,506
ACI	2,345			(1,236		)	4,656			3,670
Arnold	1,204			1,176			1,292			1,255
Foam Fabricators	1,615			848			2,131			1,873
Sterno	(1,201		)	(2,067		)	(606		)	(884		)
Allocation Interests	100			100			100			100
	$	47,445		$	39,922		$	53,808		$	50,548

Note LK — Fair Value Measurement

The following table provides the assets and liabilities carried at fair value measured on a recurring basis at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	Fair Value Measurements at September 30, 2019											Fair Value Measurements at March 31, 2020
	Carrying Value			Level 1		Level 2			Level 3			Carrying Value			Level 1		Level 2		Level 3
Liabilities:
Put option of noncontrolling shareholders ⁽¹⁾	$	(131	)	$	—	$	—		$	(131	)	$	(215	)	$	—	$	—	$	(215	)
Contingent consideration - acquisition ⁽²⁾	(4,374		)	—		—			(4,374		)
Interest rate swap	(4,883		)	—		(4,883		)	—
Total recorded at fair value	$	(9,388	)	$	—	$	(4,883	)	$	(4,505	)	$	(215	)	$	—	$	—	$	(215	)


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


⁽²⁾	~~Represents potential earn-out payable as additional purchase price consideration by Velocity Outdoor in connection with the acquisition of Ravin.~~


	Fair Value Measurements at December 31, 2018											Fair Value Measurements at December 31, 2019
	Carrying Value			Level 1		Level 2			Level 3			Carrying Value			Level 1		Level 2		Level 3
Liabilities:
Put option of noncontrolling shareholders ⁽¹⁾	$	(173	)	$	—	$	—		$	(173	)	$	(111	)	$	—	$	—	$	(111	)
Contingent consideration - acquisition ⁽²⁾	(4,374		)	—		—			(4,374		)
Interest rate swap	(2,072		)	—		(2,072		)	—
Total recorded at fair value	$	(6,619	)	$	—	$	(2,072	)	$	(4,547	)	$	(111	)	$	—	$	—	$	(111	)


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


⁽²⁾	~~Represents potential earn-out payable as additional purchase price consideration by Velocity Outdoor in connection with the acquisition of Ravin.~~

Reconciliations of the change in the carrying value of the Level 3 fair value measurements from January 1, ~~2018~~2019 through ~~September 30, 2019~~March 31, 2020 are as follows (in thousands):

Level 3
Balance at January 1, 2018 $ (178 )
Contingent consideration - Rimports ⁽¹⁾
(4,800 )
Contingent consideration - Ravin ⁽²⁾
(4,734 )
Decrease in the fair value of put option of noncontrolling shareholder - 5.11 5
Adjustment to Ravin contingent consideration 360
Reversal of contingent consideration - Rimports 4,800
Balance at January 1, 2019 $ (4,547 )
Decrease in the fair value of put option of noncontrolling shareholder - Liberty 42
Balance at September 30, 2019 $ (4,505 )



	Level 3
Balance at January 1, 2019	$	(4,547	)
Decrease in the fair value of put option of noncontrolling shareholder - Liberty	72
Increase in the fair value of put option of noncontrolling shareholder - 5.11	(10		)
Adjustment to Ravin contingent consideration ⁽¹⁾	(2,022		)
Payment of contingent consideration - Ravin ⁽¹⁾	6,396
Balance at December 31, 2019	$	(111	)
Increase in the fair value of put option of noncontrolling shareholder - Liberty	(63		)
Increase in the fair value of put option of noncontrolling shareholder - 5.11	(41		)
Balance at March 31, 2020	$	(215	)

⁽¹⁾The contingent consideration relates to Sterno's acquisition of Rimports in February 2018. The purchase price of Rimports includes a potential earn-out of up to $25 million contingent on the attainment of certain future performance criteria of Rimports for the twelve-month period from May 1, 2017 to April 30, 2018 and the fourteen month period from March 1, 2018 to April 30, 2019. The fair value of the contingent consideration related to the earn-out was estimated at $4.8 million at acquisition date and was calculated as the present value of a probability adjusted earnout payment based on the expected term of the payment and a risk-adjusted discount rate. At December 31, 2018, the Company determined that the probability of achieving the earn-out was zero and therefore reversed the amount that was recorded as part of the purchase consideration.

⁽²⁾ The contingent consideration ~~relates~~related to Velocity's acquisition of Ravin in September 2018. The purchase price of Ravin ~~includes~~included a potential earn-out of up to $25.0 million contingent on the achievement of certain financial metrics for the trailing twelve month period ending December 31, 2018. The fair value of the contingent consideration was estimated at $4.7 million at acquisition date and was calculated using a risk-adjusted option pricing model. The earnout was adjusted to ~~$4.3~~$6.4 million atand paid out during the year ended December 31, ~~2018 based on actual results to date. The earnout is currently subject to arbitration and will be paid once the final amount is determined through the arbitration process.~~2019.

Valuation Techniques

~~2018 Term Loan~~

We classify our fixed and floating rate debt as Level 2 items based on quoted market prices for similar debt issues. In April 2018, the Company issued $400.0 million aggregate principal amount of its Senior Notes due 2026. The fair value of the Senior Notes was determined based on quoted market prices obtained through an external pricing source which derives its price valuations from daily marketplace transactions, with adjustments to reflect the spreads of benchmark bonds, credit risk and certain other variables. We have determined this to be a Level 2 measurement as all significant inputs into the quote provided by our pricing source are observable in active markets. At September 30, 2019, the carrying value of the principal under the Company’s outstanding 2018 Term Loan, including the current portion, was $298.8 million, which approximates fair value because it has a variable interest rate that reflects market changes in interest rates and changes in the Company's net leverage ratio.

The Company has not changed its valuation techniques in measuring the fair value of any of its other financial assets and liabilities during the period. For details of the Company’s fair value measurement policies under the fair value hierarchy, refer to the Company’s Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2018.~~2019.

Nonrecurring Fair Value Measurements

There were no assets or liabilities measured on a non-recurring basis during the quarter ended March 31, 2020. The following table provides the assets and liabilities carried at fair value measured on a non-recurring basis as of ~~September 30,~~December 31, 2019. Refer to "Note GF – Goodwill and Other Intangible Assets", for a description of the valuation techniques used to determine fair value of the assets measured on a non-recurring basis in the table below. ~~There were no assets and liabilities carried at fair value measured on a non-recurring basis as of December 31, 2018.~~


									Expense										Expense
	Fair Value Measurements at September 30, 2019								Nine months ended		Fair Value Measurements at December 31, 2019								Year ended
(in thousands)	Carrying Value		Level 1		Level 2		Level 3		September 30, 2019		Carrying Value		Level 1		Level 2		Level 3		December 31, 2019
Goodwill - Velocity Outdoor	$	29,579	$	—	$	—	$	29,579	$	33,381	$	30,079	$	—	$	—	$	30,079	$	32,881

Note ML — Income taxes

Each fiscal quarter, the Company estimates its annual effective tax rate and applies that rate to its interim pre-tax earnings. In this regard, the Company reflects the full year’s estimated tax impact of certain unusual or infrequently occurring items and the effects of changes in tax laws or rates in the interim period in which they occur.

The computation of the annual estimated effective tax rate in each interim period requires certain estimates and significant judgment, including the projected operating income for the year, projections of the proportion of income earned and taxed in other jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, as additional information is obtained or as the tax environment changes. Certain foreign operations are subject to foreign income taxation under existing provisions of the laws of those jurisdictions.

The reconciliation between the Federal Statutory Rate and the effective income tax rate for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ is as follows:


	Nine months ended September 30,				Three months ended March 31,
	2019		2018		2020		2019
United States Federal Statutory Rate	(21.0	)%	(21.0	)%	21.0	%	(21.0	)%
State income taxes (net of Federal benefits)	4.4		3.8		12.2		2.6
Foreign income taxes	7.2		46.4		(1.6	)	(3.3	)
Expenses of Compass Group Diversified Holdings LLC representing a pass through to shareholders ⁽¹⁾	22.7		111.1		6.7		30.6
Impairment expense	15.7		—
Impact of subsidiary employee stock options	0.3		(25.3	)	6.2		0.4
Credit utilization	(2.0	)	(10.2	)	(4.5	)	(2.5	)
Non-recognition of NOL carryforwards at subsidiaries	3.9		40.5		(47.1	)	1.0
Effect of Tax Act	4.0		51.7		6.2		3.1
Other	(5.5	)	(1.3	)	5.2		1.5
Effective income tax rate	29.7	%	195.7	%	4.3	%	12.4	%


⁽¹⁾	The effective income tax rate for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ includes a loss at the Company's parent, which is taxed as a partnership.

Note NM — Defined Benefit Plan

In connection with the acquisition of Arnold, the Company has a defined benefit plan covering substantially all of Arnold’s employees at its Lupfig, Switzerland location. The benefits are based on years of service and the employees’ highest average compensation during the specific period.

The unfunded liability of ~~$5.7~~$4.2 million is recognized in the consolidated balance sheet as a component of other non-current liabilities at ~~September 30, 2019.~~March 31, 2020. Net periodic benefit cost consists of the following for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Service cost	$	127		$	135		$	383		$	403		$	139		$	127
Interest cost	33			24			99			72			8			33
Expected return on plan assets	(39		)	(39		)	(119		)	(117		)	(21		)	(40		)
Amortization of unrecognized loss	35			49			104			148			56			34
Net periodic benefit cost	$	156		$	169		$	467		$	506		$	182		$	154

During the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020, per the terms of the pension agreement, Arnold contributed ~~$0.3~~$0.1 million to the plan. For the remainder of ~~2019,~~2020, the expected contribution to the plan will be approximately ~~$0.5~~$1.1 million.

The plan assets are pooled with assets of other participating employers and are not separable; therefore, the fair values of the pension plan assets at ~~September 30, 2019~~March 31, 2020 were considered Level 3.

Note ON - Commitments and Contingencies

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

Leases

The Company and its subsidiaries lease manufacturing facilities, warehouses, office facilities, retail stores, equipment and vehicles under various operating arrangements. Certain of the leases are subject to escalation clauses and renewal periods. The Company and its subsidiaries recognize lease expense, including predetermined fixed escalations, on a straight-line basis over the initial term of the lease including reasonably assured renewal periods from the time that

the Company and its subsidiaries control the leased property. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Certain of our subsidiaries have leases that contain both fixed rent costs and variable rent costs based on achievement of certain operating metrics. The variable lease expense has not been material on a historic basis and no amount was incurred during the quarter ending ~~September 30, 2019.~~March 31, 2020. In the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, the Company recognized ~~$6.3~~$7.3 million ~~and $18.6 million, respectively,~~ in expense related to operating leases in the condensed consolidated statements of operations.

The maturities of lease liabilities at ~~September 30, 2019~~March 31, 2020 were as follows (in thousands):


2019 (excluding nine months ended September 30, 2019)	$	4,775
2020	25,140
2020 (excluding three months ended March 31, 2020)			$	19,270
2021	22,111		24,165
2022	19,891		21,947
2023	14,023		15,754
2024			12,426
Thereafter	46,876		41,362
Total undiscounted lease payments	$	132,816	$	134,924
Less: Interest	41,587		39,345
Present value of lease liabilities	$	91,229	$	95,579

The calculated amount of the right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and discount rate used to present value the minimum lease payments. The Company's lease agreements often include one or more options to renew at the company's discretion. In general, it is not reasonably certain that lease renewals will be exercised at lease commencement and therefore lease renewals are not included in the lease term. Regarding the discount rate, Topic 842 requires the use of a rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes the incremental borrowing rate of the subsidiary entering into the lease arrangement, on a collateralized basis, over a similar term as adjusted for any country specific risk. ~~For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used.~~

The weighted average remaining lease terms and discount rates for all of our operating leases were as follows as of ~~September 30, 2019:~~March 31, 2020:



Lease Term and Discount Rate
Weighted-average remaining lease term (years)	~~6.41~~6.39
Weighted-average discount rate	~~7.83~~7.75	%

Supplemental balance sheet information related to leases was as follows (in thousands):


	Line Item in the Company’s Consolidated Balance Sheet	September 30, 2019		Line Item in the Company’s Consolidated Balance Sheet	March 31, 2020

Operating lease right-of-use assets	Other non-current assets	$	89,159	Other non-current assets	$	91,830
Current portion, operating lease liabilities	Other current liabilities	$	18,499	Other current liabilities	$	18,721
Operating lease liabilities	Other non-current liabilities	$	72,730	Other non-current liabilities	$	76,858

Supplemental cash flow information related to leases was as follows (in thousands):


	Nine months ended September 30, 2019		Three months ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	18,574	$	7,319
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	14,178	$	4,539

Note PO — Related Party Transactions

Management Services Agreement

The Company entered into ~~a Management Services Agreement ("MSA")~~the MSA with CGM effective May 16, 2006. The MSA provides for, among other things, CGM to perform services for the Company in exchange for a management fee paid quarterly and equal to 0.5% of the Company's adjusted net assets, as defined in the MSA. Concurrent with the June 2019 sale of Clean Earth (refer to Note CB - Discontinued Operations), CGM agreed to waive the management fee on cash balances held at the Company, commencing with the quarter ended June 30, 2019 and continuing until the quarter during which the Company next borrows under the 2018 Revolving Credit Facility. In March 2020, as a proactive measure to provide the Company with additional cash liquidity in light of the COVID-19 pandemic, the Company elected to draw down $200 million on our 2018 Revolving Credit Facility. The Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of March 31, 2020. In addition, as a result of an expected decline in earnings and cash flows in the second quarter of 2020, CGM has agreed to waive 50% of the management fee calculated at June 30, 2020 that will be paid in July 2020.

Integration Services Agreements

Foam Fabricators, which was acquired in 2018, ~~and Velocity Outdoor, which was acquired in 2017, each~~ entered into an Integration Services Agreement ("ISA") with CGM. The ISA provides for CGM to provide services for new platform acquisitions to, amongst other things, assist the management at the acquired entities in establishing a corporate governance program, implement compliance and reporting requirements of the Sarbanes-Oxley Act of 2002, as amended, and align the acquired entity's policies and procedures with our other subsidiaries. ~~Each~~The ISA is for the ~~twelve month~~twelve-month period subsequent to the acquisition. ~~Velocity Outdoor paid CGM a total of $1.5 million in integration services fees, with $0.75 million paid in 2018.~~ Foam Fabricators paid CGM $2.3 million over the term of the ISA, with $2.0 million paid in 2018 and $0.3 million in 2019. Integration services fees are included in selling, general and administrative expense on the subsidiaries' statement of operations in the period in which they are incurred.

The Company and its businesses have the following significant related party transactions:

~~Sterno Recapitalization~~

In January 2018, the Company completed a recapitalization at Sterno whereby the Company entered into an amendment to the intercompany loan agreement with Sterno (the "Sterno Loan Agreement"). The Sterno Loan Agreement was amended to (i) provide for term loan borrowings of $56.8 million to fund a distribution to the Company, which owned 100% of the outstanding equity of Sterno at the time of the recapitalization, and (ii) extend the maturity dates of the term loans. In connection with the recapitalization, Sterno's management team exercised all of their vested stock options, which represented 58,000 shares of Sterno. The Company then used a portion of the distribution to repurchase the 58,000 shares from management for a total purchase price of $6.0 million. In addition, Sterno issued new stock options to replace the exercised options, thus maintaining the same percentage of fully diluted non-controlling interest that existed prior to the recapitalization.

5.11

Related Party Vendor Purchases - 5.11 purchases inventory from a vendor who is a related party to 5.11 through one of the executive officers of 5.11 via the executive's 40% ownership interest in the vendor. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and March 31, 2019, 5.11 purchased approximately ~~$1.1~~$0.5 million and ~~$3.2~~$1.3 million, respectively, in inventory from the vendor.

Note P - Subsequent Event

Acquisition of Marucci Sports, LLC

On March 6, 2020, the Company, through a wholly-owned subsidiary, Wheelhouse Holdings Inc., a Delaware corporation (“Buyer”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Marucci Sports, LLC, a Delaware limited liability company (“Marucci”), Wheelhouse Holdings Merger Sub LLC, a Delaware limited liability company and a wholly owned Subsidiary of Buyer (“Merger Sub”), and, Wheelhouse 2020 LLC, a Delaware limited liability company (in its capacity as the representative of the unit holders and option holders of Marucci), pursuant to which Merger Sub was to merge with and into Marucci (the “Merger”) such that the separate existence of Merger Sub would cease, with Marucci surviving the Merger as a subsidiary of Buyer. Headquartered in Baton Rouge, Louisiana, Marucci is a leading manufacturer and distributor of baseball and softball equipment. Founded in 2009, Marucci has a product portfolio that includes wood and metal bats, apparel and accessories, batting and fielding gloves and bags and protective gear.

The Buyer, via the Merger, completed the acquisition of Marucci on April 20, 2020 for a total purchase price of approximately $200 million in cash, subject to certain adjustments based on matters such as the working capital and indebtedness balances at the time of the closing. The Company funded the purchase price using funds drawn on its 2018 Revolving Credit Facility in March 2020. The Company's initial equity ownership in Marucci is approximately 92%, as certain existing stakeholders in Marucci invested in the transaction alongside the Company.

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 section 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, ~~2018~~2019 and in the section entitled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Overview

Compass Diversified Holdings ("Holdings") was incorporated in Delaware on November 18, 2005. Compass Group Diversified Holdings LLC (the "Company") was also formed on November 18, 2005. Holdings and the Company (collectively, "CODI") were formed to acquire and manage a group of small and middle-market businesses headquartered in North America. The Company is the operating entity and is a controlling owner of eight businesses, or operating segments, at ~~September 30, 2019.~~March 31, 2020. The segments are as follows: 5.11 Acquisition Corp. ("5.11" ~~or "5.11 Tactical"~~), The Ergo Baby Carrier, Inc. ("Ergobaby"), Liberty Safe and Security Products, Inc. ("Liberty Safe" or "Liberty"), Velocity Outdoor, Inc. (formerly Crosman Corp.) ("Velocity Outdoor" or "Velocity"), Compass AC Holdings, Inc. ("ACI" or "Advanced Circuits"), AMT Acquisition Corporation ("Arnold"), FFI Compass, Inc. ("Foam Fabricators" or "Foam") and The Sterno Group, LLC ("Sterno").

We acquired our existing businesses (segments) that we own at ~~September 30, 2019~~March 31, 2020 as follows:


		Ownership Interest - September 30, 2019			Ownership Interest - March 31, 2020
Business	Acquisition Date	Primary	Diluted	Acquisition Date	Primary	Diluted
Advanced Circuits	May 16, 2006	69.4%	65.4%	May 16, 2006	69.4%	65.3%
Liberty Safe	March 31, 2010	91.2%	88.4%	March 31, 2010	91.2%	86%
Ergobaby	September 16, 2010	81.9%	75.8%	September 16, 2010	81.9%	75.8%
Arnold	March 5, 2012	96.7%	80.2%	March 5, 2012	96.7%	81.4%
Sterno	October 10, 2014	100.0%	88.5%	October 10, 2014	100.0%	87.5%
5.11 Tactical	August 31, 2016	97.5%	88.9%
5.11				August 31, 2016	97.6%	88.9%
Velocity Outdoor	June 2, 2017	99.2%	93.0%	June 2, 2017	99.3%	87.5%
Foam Fabricators	February 15, 2018	100.0%	91.5%	February 15, 2018	100.0%	91.5%

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

Branded Consumer

5.11 ~~Tactical~~ - 5.11 is a leading provider of purpose-built ~~tactical~~technical apparel and gear for law enforcement, firefighters, EMS, and military special operations as well as outdoor and adventure enthusiasts. 5.11 is a brand known for innovation and authenticity, and works directly with end users to create purpose-built apparel and gear designed to enhance the safety, accuracy, speed and performance of tactical professionals and enthusiasts worldwide. 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.

Ergobaby - Headquartered in Los Angeles, California, Ergobaby is dedicated to building a global community of confident 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, car seats, swaddlers, nursing pillows, and related products that fit into families’ daily lives seamlessly, comfortably and safely. Historically, Ergobaby derives more than 50% of its sales from outside of the United States.

Liberty - 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.

Velocity Outdoor - A leading designer, manufacturer, and marketer of airguns, archery products, laser aiming devices and related accessories, Velocity Outdoor offers its products under the highly recognizable Crosman, Benjamin, LaserMax, Ravin and CenterPoint brands that are available through national retail chains, mass merchants, dealer and distributor networks. The airgun product category consists of air rifles, air pistols and a range of accessories including targets, holsters and cases. Velocity Outdoor's other primary product categories are archery, with products including CenterPoint crossbows and the Pioneer Airbow, consumables, which includes steel and plastic BBs, lead pellets and CO2 cartridges, lasers for firearms, and airsoft products. In September 2018, Velocity acquired Ravin Crossbows, LLC ("Ravin" or "Ravin Crossbows"), a manufacturer and innovator of crossbows and accessories. Ravin primarily focuses on the higher-end segment of the crossbow market and has developed significant intellectual property related to the advancement of crossbow technology. Velocity Outdoor is headquartered in Bloomfield, New York.

Niche Industrial

Advanced Circuits - Advanced Circuits is a provider of small-run, quick-turn and volume production printed circuit boards ("PCBs") to customers throughout the United States. Historically, small-run and quick-turn PCBs have represented approximately 50% - 55% of Advanced Circuits’ gross sales. Small-run and quick-turn PCBs typically command higher margins than volume production PCBs given that customers require high levels of responsiveness, technical support and timely delivery of small-run and quick-turn PCBs and are willing to pay a premium for them. Advanced Circuits is able to meet its customers’ demands by manufacturing custom PCBs in as little as 24 hours, while maintaining over 98.0% error-free production rates and real-time customer service and product tracking 24 hours per day.

Arnold - Arnold serves a variety of markets including aerospace and defense, general industrial, motorsport/ automotive, oil and gas, medical, ~~general industrial,~~ energy, reprographics and advertising specialties. Over the course of more than 100 years, Arnold has successfully evolved and adapted our products, technologies, and manufacturing presence to meet the demands of current and emerging markets. Arnold produces high performance permanent magnets (PMAG), precision foil products (Precision Thin Metals or "PTM"), and flexible magnets (Flexmag™) that are mission critical in motors, generators, sensors and other systems and components. Arnold has expanded globally and built strong relationships with our customers worldwide. Arnold is the largest and, we believe, the most technically advanced U.S. manufacturer of engineered magnetic systems. Arnold is headquartered in Rochester, New York.

Foam Fabricators - Founded in 1957 and headquartered in Scottsdale, Arizona, Foam Fabricators is a designer and manufacturer of custom molded protective foam solutions and original equipment manufacturer (OEM) components made from expanded polystyrene (EPS) and expanded polypropylene (EPP). Foam Fabricators operates 13 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.

Sterno - Sterno, headquartered in Corona, California, is the parent company of Sterno Products, LLC ("Sterno Products"), Sterno Home Inc. ("Sterno Home"), and Rimports Inc. ("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. Sterno offers a broad range of wick and gel chafing fuels, butane stoves and accessories, liquid and traditional wax candles, catering equipment and lamps through ~~their~~ Sterno Products, ~~division. In January 2016, Sterno acquired Northern International, Inc. (formerly Sterno Home), which sells~~ flameless candles and outdoor lighting products through ~~the retail segment,~~Sterno Home, and ~~in February 2018, Sterno acquired Rimports, which is a manufacturer and distributor of branded and private label~~ scented wax cubes and warmer products used for home decor and fragrance ~~systems.~~systems through Rimports.

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.

While our businesses have different growth opportunities and potential rates of growth, we work with the management teams of each of our businesses to increase the value of, and cash generated by, each business through various initiatives, including making selective capital investments to expand geographic reach, increase capacity or reduce manufacturing costs of our businesses; improving and expanding existing sales and marketing programs; and assisting in the acquisition and integration of complementary businesses.

We remain focused on marketing our Company's attractive ownership and management attributes to potential sellers of middle market businesses. In addition, we continue to pursue opportunities for add-on acquisitions by our existing subsidiary companies, which can be particularly attractive from a strategic perspective.

Impact of COVID-19 on Our Operations, Financial Condition, Liquidity and Results of Operations

In March 2020, the World Health Organization categorized COVID-19 as a pandemic. The ~~middle market continues~~COVID-19 pandemic has resulted in governments around the world implementing increasingly stringent measures to ~~be an active segment for deal flow, with further acceleration~~help control the spread of ~~deal flow expected~~the virus, including quarantines, “shelter-in-place” and “stay-at-home” orders, travel restrictions, business curtailments, particularly retail operations and non-essential businesses, school closures, and other measures. In addition, governments and central banks in ~~2019. High valuation levels~~several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19. We are closely monitoring the impact of the outbreak of COVID-19 on all aspects of our business, including how it will impact our customers, employees, supply chains, and distribution networks. We experienced and expect to continue to ~~be driven by~~experience reductions in customer demand in several of our end-markets. We expect that the ~~availability of debt capital with favorable terms and financial and strategic buyers seeking~~government measures taken to ~~deploy available equity capital. We believe that companies will focus on expanding their customer bases by diversifying their products and services in existing geographic areas during 2019.~~

~~Recent Events~~

~~Sale of Clean Earth~~

~~On May 8, 2019,~~address the Company, as majority stockholder of CEHI Acquisition Corporation (" Clean Earth" or “CEHI”) and as Sellers’ Representative, entered into a definitive Stock Purchase Agreement (the “Purchase Agreement”) with Calrissian Holdings, LLC (“Buyer”), CEHI, the other holders of stock and options of CEHI and, as Buyer’s guarantor, Harsco Corporation, pursuant to which Buyer would acquire allspread of the ~~issued and outstanding securities~~virus, the reduced operational status of ~~CEHI,~~some of our suppliers, the ~~parent company of the operating entity, Clean Earth, Inc.~~

On June 28, 2019, Buyer completed the acquisition of all of the issued and outstanding securities of CEHI pursuant to the Purchase Agreement. The sale price for CEHI was based on an aggregate total enterprise value of $625 million and is subject to customary working capital adjustments. After the allocation of the sale proceeds to CEHI non-controlling equity holdersreductions in production at certain facilities, and the ~~payment~~closure of ~~transaction expenses of approximately $10.7 million, we received approximately $552 million of total proceeds at closing related to~~many brick and mortar retail businesses will more meaningfully impact our ~~debt and equity interests in CEHI. We recognized a gain on the sale of CEHI of $206.3 million~~operations in the second quarter of ~~2019. During~~2020. The health of our team and various stakeholders is our highest priority, and we are taking multiple steps to provide support and a safe work environment. In March 2020, as a proactive measure to provide the ~~third~~Company with additional cash liquidity in light of the COVID-19 pandemic, the Company elected to draw down $200 million on our 2018 Revolving Credit Facility. The Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of March 31, 2020. Additionally, as a result of an expected decline in earnings and cash flows in the second quarter of ~~2019, we received~~2020, CGM has agreed to waive 50% of the management fee calculated at June 30, 2020 that will be paid in July 2020. We are also working with management at each of our businesses to reduce our controllable costs, including short-term actions to reduce labor costs, eliminating non-essential travel and reducing discretionary spending. Additionally, our businesses are proactively managing working capital ~~settlement from~~and we have reduced our capital spending plan for the ~~Buyer~~year, without deferring many key strategic ongoing initiatives.

The COVID-19 pandemic has had, and ~~recorded~~will continue to have, negative impacts on our businesses, results of operations, financial condition and cash flows in the near and medium term. The ultimate impact of COVID-19 on our business is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are highly uncertain and cannot be accurately predicted at this time.

See Part II, Item 1A. "Risk Factors" for an ~~additional $2.2 million gain~~update to our existing risk factors related to the ~~sale of Clean Earth.~~COVID-19 pandemic.

~~Sale of Manitoba Harvest~~

On February 19, 2019, we entered into a definitive agreement with Tilray, Inc. ("Tilray") and a wholly-owned subsidiary of Tilray, 1197879 B.C. Ltd. (“Tilray Subco”), to sell to Tilray, through Tilray Subco, all2020 Outlook in Consideration of the ~~issued~~COVID-19 Pandemic

Due to the speed with which the COVID-19 pandemic is developing and ~~outstanding securities~~the uncertainties created, including the depth and duration of ~~our majority owned subsidiary, Manitoba Harvest~~disruptions to customers and suppliers, the full future effect to the Company’s business, results of operations, and financial condition for ~~total consideration~~fiscal year 2020 cannot be accurately predicted. Given the many rapidly changing variables related to the pandemic, at this time the Company is not in a position to accurately forecast the full-year 2020 impacts and is withdrawing its full-year fiscal 2020 financial guidance, including guidance on expected Adjusted EBITDA and the payout ratio.

In the nearer term, the Company anticipates that COVID-19 will have a negative impact on its results of upoperations for the second quarter ended June 30, 2020, including a substantial decrease in Adjusted EBITDA as compared to ~~C$419 million. The completion~~the prior year second quarter. For example, the Company expects the Sterno Products division of Sterno to be negatively impacted by the pandemic due to that division's reliance on the food service industry. As a result of the ~~sale of Manitoba Harvest was subject~~decline in Adjusted EBITDA, the Company expects to ~~approval by~~have lower free cash flow in the ~~British Columbia Supreme Court, which occurred on February 21, 2019. The sale closed on February 28, 2019. Subject~~second quarter and for the full year compared to ~~certain customary adjustments,~~ the ~~shareholders of Manitoba Harvest, including~~prior year period and full year.

During 2019, the Company received ~~or will receive the following from Tilray as consideration for their shares~~an aggregate total of ~~Manitoba Harvest: (i) C$150~~$771.6 million in net cash toproceeds as a result of the ~~holders of preferred shares~~divestitures of Manitoba Harvest and Clean Earth, as well as $111.0 million from the issuance and sale of Series C Preferred Shares. As a result the Company believes that it currently has adequate liquidity and capital resources to meet its existing obligations, and quarterly distributions to its shareholders, as approved by the Board of Directors, over the next twelve months. However, if the Company’s operations are impacted more than expected in the second quarter of 2020 or continue to be substantially impacted during the third and fourth quarter of 2020 as a result of continued declining COVID-19-related economic conditions and the potential for an extended economic recession, the Company’s results of operations could be impacted more dramatically than currently anticipated and as a result, the Company’s liquidity and capital resources could be even more constrained than expected.

See Part II, Item 1A. "Risk Factors" for additional information.

Recent Events

Acquisition of Marucci Sports, LLC

On March 6, 2020, the Company, through a wholly-owned subsidiary, Wheelhouse Holdings Inc., a Delaware Corporation (“Buyer”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Marucci Sports, LLC, a Delaware limited liability company (“Marucci”), Wheelhouse Holdings Merger Sub LLC, a Delaware limited liability company and a wholly owned Subsidiary of Buyer (“Merger Sub”), and, Wheelhouse 2020 LLC, a Delaware limited liability company (in its capacity as the representative of the unit holders and option holders of ~~common shares~~Marucci), pursuant to which Merger Sub was to be merged with and into Marucci (the “Merger”) such that the separate existence of ~~Manitoba Harvest (“Common Holders”)~~Merger Sub would cease, and ~~C$127.5 million~~Marucci would survive the Merger as a subsidiary of Buyer. Headquartered in ~~shares~~Baton Rouge, Louisiana, Marucci is a leading manufacturer and distributor of ~~class 2 Common Stock~~baseball and softball equipment. Founded in 2009, Marucci has a product portfolio that includes wood and metal bats, apparel and accessories, batting and fielding gloves and bags and protective gear.

The Buyer, via the Merger, completed the acquisition of ~~Tilray (“Tilray Common Stock”) to the Common Holders~~Marucci on ~~the closing date~~April 20, 2020 for a total purchase price of ~~the sale (the “Closing Date Consideration”), and (ii) C$50~~approximately $200 million in cash, subject to certain adjustments based on matters such as the working capital and ~~C$42.5 million in Tilray Common Stock to~~indebtedness balances at the ~~Common Holders on the date that is six months after the closing date~~time of the ~~arrangement (the “Deferred Consideration”).~~closing. The ~~sale consideration also includes a potential earnout of up to C$49 million~~Company funded the purchase price using funds drawn on its 2018 Revolving Credit Facility in ~~Tilray Common Stock~~

~~to the Common Holders, if Manitoba Harvest achieves~~March 2020. The Company's initial equity ownership in Marucci is approximately 92%, as certain ~~levels of U.S. branded gross sales of edible or topical products containing broad spectrum hemp extracts or cannabidiols prior to December 31, 2019.~~

The cash portion of the Closing Date Consideration was reduced by the amount of the net indebtedness (including accrued interest) of Manitoba Harvest on the closing date of C$71.3 million ($53.7 million) and transaction expenses of approximately C$5.0 million. We recognized a gain on the sale of Manitoba Harvest of $121.7 millionexisting stakeholders in Marucci invested in the ~~first quarter of 2019. Refer to "Liquidity and Capital Resources, Profit Allocation Payments" for a discussion of~~transaction alongside the profit allocation associated with the sale of Manitoba Harvest. Our share of the net proceeds after accounting for the redemption of the noncontrolling shareholders and the payment of net indebtedness of Manitoba Harvest and transaction expenses was approximately $124.2 million in cash proceeds and in Tilray Common Stock. In August 2019, the Company received the Deferred Consideration related to the sale. The Company's portion of the Deferred Consideration totaled $28.4 million in cash proceeds and $19.6 million in Tilray Common Stock. No amount has been recorded related to the potential earnout as of September 30, 2019 based on an assessment of probability at the end of the quarter.

The Tilray Common Stock consideration was issued in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") and pursuant to exemptions from applicable securities laws of any state of the United States, such that any shares of Tilray Common Stock received by the Common Holders were freely tradeable. We sold the Tilray Common Stock received as part of the Closing Consideration during March 2019, recognizing a net loss of $5.3 million in Other income (expense) during the quarter ended March 31, 2019. In August 2019, the Company sold the Tilray Common Stock received as part of the Deferred Consideration, recognizing a loss of $4.9 million in Other income/ (expense) during the quarter ended September 30, 2019.Company.

Non-GAAP Financial Measures

"U.S. GAAP" 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.

Results of Operations

The following discussion reflects a comparison of the historical results of operations of our consolidated business for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and March 31, 2019, ~~and September 30, 2018,~~ and components of the results of operations as well as those components presented as a percent of net revenues, for each of our businesses on a stand-alone basis. ~~For~~In the ~~2018 acquisitions~~first quarter of ~~Foam Fabricators~~2020, we began to see the impacts of COVID-19 on certain of our businesses, markets and ~~Rimports, the pro forma results~~operations, particularly those that were most affected by governmental “stay-at home” orders which led to reduced consumer traffic and either a closure of ~~operations have been prepared~~stores by some retailers or a focus on items that were deemed essential. However, while some of our businesses experienced downward revenue pressure as if we purchased these businesses on January 1, 2018. The historical operating results of Rimports prior to acquisition by Sterno on February 26, 2018 have been added to the results of operations of Sterno for the nine months ended September 30, 2018 for comparability purposes. Where appropriate, relevant pro forma adjustments are reflected as parta result of the ~~historical operating results. We believe this is the most meaningful comparison~~abrupt halt to large segments of the ~~operating results for each~~economy, our businesses are strategically diverse, and whereas some of our businesses were negatively impacted, some of our businesses continued to experience solid demand through the end of the quarter. We expect that the impact of COVID-19 and steps taken by governments to limit the spread of the virus will more meaningfully impact our operations in the second quarter, and general business ~~segments.~~uncertainty will continue to negatively impact demand in several of our end-markets in the second quarter of 2020, and possibly further into 2020 and beyond. The following results of operations at each of our businesses are not necessarily indicative of the results to be expected for a full year.

All dollar amounts in the financial tables are presented in thousands. References in the financial tables to percentage changes that are not meaningful are denoted by "NM."

Results of Operations - Consolidated

The following table sets forth our unaudited results of operations for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:


	Three months ended						Nine months ended						Three months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018			March 31, 2020			March 31, 2019
Net revenues	$	388,313		$	360,283		$	1,063,254		$	986,402		$	333,449		$	338,857
Cost of revenues	251,778			236,286			684,601			640,039			213,961			219,302
Gross profit	136,535			123,997			378,653			346,363			119,488			119,555
Selling, general and administrative expense	82,027			79,577			243,736			241,253			83,800			81,397
Fees to manager	8,874			10,768			28,352			32,204			8,620			10,957
Amortization of intangibles	13,520			12,788			40,632			35,533			13,505			13,590
Impairment expense	33,381			—			33,381			—
Operating income (loss)	(1,267		)	20,864			32,552			37,373
Operating income													13,563			13,611
Interest expense	(11,525		)	(15,635		)	(48,424		)	(35,227		)	(8,597		)	(18,454		)
Amortization of debt issuance costs	(770		)	(927		)	(2,625		)	(2,978		)	(525		)	(927		)
Loss on sale of securities	(4,893		)	—			(10,193		)	—
Other income (expense)	(5,727		)	511			(6,251		)	(3,029		)	661			(5,734		)
Income (loss) from continuing operations before income taxes	(24,182		)	4,813			(34,941		)	(3,861		)	5,102			(11,504		)
Provision for income taxes	4,400			5,470			10,375			7,557			222			1,424
Income (loss) from continuing operations	$	(28,582	)	$	(657	)	$	(45,316	)	$	(11,418	)	$	4,880		$	(12,928	)

Three months ended ~~September 30, 2019~~March 31, 2020 compared to three months ended ~~September 30, 2018~~March 31, 2019

Net revenues

On a consolidated basis, net revenues for the three months ended ~~September 30, 2019 increased~~March 31, 2020 decreased by approximately ~~$28.0~~$5.4 million, or ~~7.8%~~1.6%, compared to the corresponding period in ~~2018.~~2019. During the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~2018,~~2019, we saw notable increases in net sales at 5.11 ($~~14.7~~7.7 million increase)~~, Velocity Outdoor ($12.4 million increase primarily as a result of the Ravin acquisition)~~, and Liberty ($~~6.9~~2.8 million increase), offset by decreases in net sales at Ergobaby ($2.8 million decrease), Foam Fabricators ($~~2.0~~2.3 million decrease) and Sterno ($~~2.4~~8.2 million decrease). Refer to "Results of Operations - Business Segments" for a more detailed analysis of net revenues by business segment.

We do not generate any revenues apart from those generated by the businesses we own. We may generate interest income on the investment of available funds, but we expect such earnings to be minimal. Our investment in our businesses is typically in the form of loans from the Company to such businesses, as well as equity interests in those

companies. Cash flows coming to the Trust and the Company are the result of interest payments on those loans, amortization of those loans and dividends on our equity ownership. However, on a consolidated basis, these items will be eliminated.

Cost of revenues

On a consolidated basis, cost of revenues ~~increased~~decreased approximately ~~$15.5~~$5.3 million during the three months ended ~~September 30, 2019~~March 31, 2020 compared to the corresponding period in ~~2018.~~2019. The ~~increase~~decrease in cost of revenues reflects notable ~~increases~~decreases at Sterno ($4.4 million decrease) and Foam Fabricators ($2.5 million decrease), partially offset by an increase in cost of sales at 5.11 ($~~6.5~~3.4 million increase)~~, Velocity ($7.9 million increase) and Liberty ($5.2 million increase) that corresponds with the increase in net sales at these companies.~~. Gross profit as a percentage of net revenues was approximately ~~35.2%~~35.8% in the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~34.4%~~35.3% in the three months ended ~~September 30, 2018.~~March 31, 2019. Refer to "Results of Operations - Business Segments" for a more detailed analysis of gross profit by business segment.

Selling, general and administrative expense

Consolidated selling, general and administrative expense increased approximately ~~$2.5~~$2.4 million during the three months ended ~~September 30, 2019,~~March 31, 2020, compared to the corresponding period in ~~2018.~~2019. Refer to "Results of Operations - Business Segments" for a more detailed analysis of selling, general and administrative expense by business segment. At the

corporate level, general and administrative expense was $3.3 million in both the ~~third~~first quarter of ~~2019~~2020 and ~~$2.7 million in~~ the ~~third~~first quarter of ~~2018.~~2019.

Fees to manager

Pursuant to the Management Services Agreement ("MSA"), we pay CGM a quarterly management fee equal to 0.5% (2.0% annually) of our consolidated adjusted net assets. We accrue for the management fee on a quarterly basis. For the three months ended ~~September 30, 2019,~~March 31, 2020, we incurred approximately ~~$8.9~~$8.6 million in management fees as compared to ~~$10.8~~$11.0 million in fees in the three months ended ~~September 30, 2018.~~March 31, 2019. The decrease was attributable to the ~~sales~~sale of ~~Manitoba Harvest in the first quarter of 2019 and~~ Clean Earth in the second quarter of 2019. Concurrent with the June 2019 sale of Clean Earth, CGM agreed to waive the management fee on cash balances held at the Company, commencing with the quarter ended June 30, 2019 and continuing until the quarter during which the Company next ~~borrows~~borrowed under the 2018 Revolving Credit Facility. In March 2020, as a proactive measure to provide the Company with additional cash liquidity in light of the COVID-19 pandemic, the Company elected to draw down $200 million on our 2018 Revolving Credit Facility. The Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of March 31, 2020. Additionally, as a result of an expected decline in earnings and cash flows in the second quarter of 2020, CGM has agreed to waive 50% of the management fee calculated at June 30, 2020 that will be paid in July 2020.

Amortization expense

Amortization expense for the three months ended ~~September 30, 2019 increased $0.7~~March 31, 2020 decreased $0.1 million as compared to the three months ended ~~September 30, 2018 primarily as a result of finalization of the amortization of intangible assets at Velocity related to the Ravin acquisition in September 2018.~~

~~Impairment expense~~

~~Velocity Outdoor performed an interim impairment test of their goodwill during the quarter ended September 30, 2019, which resulted in recording impairment expense of $33.4 million.~~March 31, 2019.

Interest expense

We recorded interest expense totaling ~~$11.5~~$8.6 million for the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~$15.6~~$18.5 million for the comparable period in ~~2018,~~2019, a decrease of ~~$4.1~~$9.9 million. The decrease in interest expense for the quarter reflects the repayment of ~~$193.8 million on~~ our 2018 Term Loan ~~in July~~during 2019 using a portion of the proceeds from the sale of Clean Earth and proceeds from the issuance of preferred shares, as well as a decrease of the average amount outstanding under our ~~revolving credit facility~~2018 Revolving Credit Facility in the ~~third~~first quarter of ~~2019~~2020 as compared to the ~~third~~first quarter of ~~2018.~~2019.

Other income (expense)

For the quarter ended ~~September 30, 2019,~~March 31, 2020, we recorded $0.7 million in other income as compared to $5.7 million in other expense ~~as compared to $0.5 million in other income~~ in the quarter ended ~~September 30, 2018,~~March 31, 2019, an increase in ~~expense~~income of ~~$6.2~~$6.4 million. Other ~~expense~~income (expense) primarily reflects the movement in foreign currency at our businesses with international operations. In the ~~third quarter of 2019 included $5.0~~prior year, we incurred $5.3 million in ~~expense~~loss on the sale of the Tilray Common Stock we received related to the ~~write-off~~sale of ~~debt issuance costs as a result of our partial pay down of our 2018 Term Loan in July 2019.~~Manitoba Harvest.

Income taxes

We had an income tax provision of ~~$4.4~~$0.2 million from continuing operations during the three months ended ~~September 30, 2019~~March 31, 2020 compared to an income tax provision of ~~$5.5~~$1.4 million from continuing operations during the same period in ~~2018.~~2019. While our income from continuing operations before taxes for the quarter ended ~~September 30, 2019 decreased~~March 31, 2020 increased by approximately ~~$29.0~~$16.6 million as compared to the prior year quarter ended ~~September~~March 30, ~~2018,~~2019, our tax provision ~~increased only $1.1~~decreased

$1.2 million as the tax provision reflects an annual effective tax rate at our subsidiaries, the effect of state and local taxes and the ~~impairment expense at Velocity~~related allocation of income, and ~~is effected by~~ the losses at our parent company, which is taxed as a partnership.

~~Nine months ended September 30,~~On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act includes many measures to assist companies, including temporary changes to income and non-income-based tax laws, some of which were enacted under the Tax Cuts and Jobs Act (TCJA) in 2017. Some of the key income tax related provisions of the CARES Act were allowing net operating losses ("NOLs") arising in 2018, 2019 ~~compared~~or 2020 to ~~nine months ended September 30, 2018~~

~~Net revenues~~

~~On a consolidated basis, net revenues~~be carried back five years, suspending the 80% taxable income limit until 2021, and increasing the taxable income threshold for the ~~nine months ended September 30,~~limit on the interest deduction from 30% to 50% for tax years beginning in 2019 ~~increased by approximately $76.9 million, or 7.8%, compared~~and 2020 and allowing taxpayers to use 2019 taxable income to calculate the ~~corresponding period in 2018. Our acquisitions~~2020 limit. While several of ~~Foam Fabricators and Rimports in February 2018 contributed $11.6 million and $33.1 million, respectively,~~our subsidiaries were able to the increase in net revenues. During the nine months ended September 30, 2019 compared to 2018, we also saw a notable increases in net sales at 5.11 ($27.0 million increase), Velocity ($13.1 million increase as a resulttake advantage of the Ravin acquisition on September 2018) and Liberty ($5.8 million increase) partially offset by a decrease in net sales at our legacy Sterno business. Refer to "Results of Operations - Business Segments" for a more detailed analysis of net revenues by business segment.

~~We do not generate any revenues apart from those generated by the businesses we own. We may generate interest~~ income ~~on the investment of available funds, but we expect such earnings to be minimal. Our investment in our~~

businesses is typically in the form of loans from the Company to such businesses, as well as equity interests in those companies. Cash flows coming to the Trust and the Company are the result of interest payments on those loans, amortization of those loans and dividends on our equity ownership. However, on a consolidated basis, these items will be eliminated.

~~Cost of revenues~~

~~On a consolidated basis, cost of revenues increased approximately $44.6 million~~tax related provisions during the nine months ended September 30, 2019 compared to the corresponding period in 2018. Our acquisitions of Foam Fabricators and Rimports in February 2018 contributed $6.9 million and $20.8 million, respectively, to the increase. Gross profit as a percentage of net revenues was approximately 35.6% in the nine months ended September 30, 2019 compared to 35.1% in the nine months ended September 30, 2018. Refer to "Results of Operations - Business Segments" for a more detailed analysis of gross profit by business segment.

~~Selling, general and administrative expense~~

Consolidated selling, general and administrative expense was approximately $243.7 million during the nine months ended September 30, 2019 compared to $241.3 million for the comparable period in 2018. Refer to "Results of Operations - Business Segments" for a more detailed analysis of selling, general and administrative expense by business segment. At the corporate level, general and administrative expense was $9.7 million in the first nine months of 2019 and $10.3 million in the first nine months of 2018. The nine months ended September 30, 2018 included additional professional fees at corporate associated with the implementation of new accounting standards and the refinancing of our credit facility.

~~Fees to manager~~

Pursuant to the MSA, we pay CGM a quarterly management fee equal to 0.5% (2.0% annually) of our consolidated adjusted net assets. We accrue for the management fee on a quarterly basis. For the nine months ended September 30, 2019, we incurred approximately $28.4 million in management fees as compared to $32.2 million in fees in the nine months ended September 30, 2018. The decrease was attributable to the sales of Manitoba Harvest in the first quarter of ~~2019 and Clean Earth in~~2020, the ~~second quarter of 2019. Concurrent with the June 2019 sale of Clean Earth, CGM agreed to waive the management fee~~CARES Act did not have a material impact on ~~cash balances held at the Company, commencing with the quarter ended June 30, 2019 and continuing until the quarter during which the Company next borrows under the 2018 Revolving Credit Facility.~~

~~Amortization expense~~

~~Amortization expense~~our consolidated financial statements for the ~~nine~~three months ended ~~September 30, 2019 increased $5.1 million as compared~~March 31, 2020. We continue to monitor any effects that may result from the ~~nine months ended September 30, 2018 primarily as a result of the acquisition of Foam Fabricators and Rimports in February 2018, and the add-on acquisition of Ravin by Velocity in 2018.~~

~~Impairment expense~~

~~Velocity Outdoor performed an interim impairment test of their goodwill during the quarter ended September 30, 2019, which resulted in recording impairment expense of $33.4 million.~~

~~Interest expense~~

We recorded interest expense totaling $48.4 million for the nine months ended September 30, 2019 compared to $35.2 million for the comparable period in 2018, an increase of $13.2 million. The increase in interest expense for the nine months ended September 30, 2019 reflects the interest associated with the issuance of our Senior Notes in April 2018, as well as an increase of the average amount outstanding under our revolving credit facility in the first nine months of 2019 as compared to the first nine months of 2018.

~~Other income (expense)~~

For the nine months ended September 30, 2019, we recorded $6.3 million in other expense as compared to $3.0 million in other expense in the nine months ended September 30, 2018, an increase in expense of $3.2 million. In the current year, we incurred $5.0 million in loss on the pay down of our 2018 Term Debt of $193.8 million, and $0.4 million related to foreign exchange losses on the repayment of the intercompany loans of Manitoba Harvest.

~~Income taxes~~

We had an income tax provision of $10.4 million with an effective income tax rate of 29.7% from continuing operations during the nine months ended September 30, 2019 compared to an income tax provision of $7.6 million with an effective

income tax rate of 195.7% from continuing operations during the nine months ended September 30, 2018. While our earnings before taxes for the nine months ended September 30, 2019 decreased by approximately $31.1 million as compared to the prior nine months ended September 30, 2018, our tax provision increased $2.8 million as the tax provision reflects an annual effective tax rate at our subsidiaries and is effected by foreign earnings at our operating segments and the losses at our parent company, which is taxed as a partnership. Additionally, a portion of the goodwill impairment related at our Velocity business is nondeductible for tax purposes.CARES Act.

Results of Operations - Business Segments

Branded Consumer Businesses

5.11 ~~Tactical~~


	Three months ended								Nine months ended								Three months ended
	September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018				March 31, 2020				March 31, 2019
Net sales	$	98,053	100.0	%	$	83,342	100.0	%	$	278,978	100.0	%	$	252,022	100.0	%	$	95,781	100.0	%	$	88,089	100.0	%
Gross profit	$	48,204	49.2	%	$	39,969	48.0	%	$	136,624	49.0	%	$	119,194	47.3	%	$	47,257	49.3	%	$	42,945	48.8	%
SG&A	$	39,791	40.6	%	$	35,792	42.9	%	$	115,927	41.6	%	$	108,742	43.1	%	$	40,235	42.0	%	$	38,171	43.3	%
Operating income	$	5,977	6.1	%	$	1,740	2.1	%	$	13,388	4.8	%	$	3,143	1.2	%	$	4,586	4.8	%	$	2,338	2.7	%

Three months ended ~~September 30, 2019~~March 31, 2020 compared to three months ended ~~September 30, 2018~~March 31, 2019

Net sales

Net sales for the three months ended ~~September 30, 2019~~March 31, 2020 were ~~$98.1~~$95.8 million as compared to net sales of ~~$83.3~~$88.1 million for the three months ended ~~September 30, 2018,~~March 31, 2019, an increase of ~~$14.7~~$7.7 million, or ~~17.7%~~8.7%. This increase is due primarily to retail and e-commerce sales growth of ~~$12.0~~$7.6 million, up ~~57%~~30% from the prior year comparable period, ~~driven by growing demand~~and an increase in ~~direct~~DTA sales of $5.7 million during the first quarter of 2020 as compared to ~~consumer channels.~~the first quarter of the prior year. Retail sales grew largely due to ~~ten~~sixteen new retail store openings since ~~September 2018~~March 2019 (bringing the total store count to ~~fifty-four~~sixty-one as of ~~September 30, 2019)~~March 31, 2020). The increase in sales from our retail and e-commerce and DTA was partially offset by a decrease in sales in our professional and outdoor retail channels as our retail partners began to see the effects of the COVID-19 pandemic on store traffic.

Gross profit

Gross profit as a percentage of net sales was ~~49.2%~~49.3% in the three months ended ~~September 30, 2019~~March 31, 2020 as compared to ~~48.0%~~48.8% for the three months ended ~~September 30, 2018.~~March 31, 2019. Growth in gross profit was driven by channel mix as direct to consumer sales, which realize higher gross profit than wholesale sales, grew ~~significantly~~ versus the prior period. The growth in gross profit for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 was partially offset by a duty drawback accrual recorded in 2020 for audited duty drawback claims.

Selling, general and administrative expense

Selling, general and administrative expense for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$39.8~~$40.2 million, or ~~40.6%~~42.0% of net sales compared to ~~$35.8~~$38.2 million, or ~~42.9%~~43.3% of net sales for the comparable period in ~~2018. The comparable quarter in the prior year included higher labor costs associated with executive severance as well as higher labor costs in the Manteca facility.~~2019. The decrease in selling, general and administrative expenses as a percentage of net sales for the three months ended ~~September 30, 2019~~March 31, 2020 as compared to the prior year comparable period was ~~also~~driven by management’s decision to reduce variable expenses, including travel and entertainment, bonus, and sales and marketing as a ~~result~~response to the effects of ~~lower travel expenses.~~the COVID-19 pandemic.

Income from operations

Income from operations for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$6.0~~$4.6 million, an increase of ~~$4.2~~$2.2 million when compared to income from operations of ~~$1.7~~$2.3 million for the same period in ~~2018, based on the factors described above.~~

~~Nine months ended September 30,~~ 2019, ~~compared to nine months ended September 30, 2018~~

~~Net sales~~

Net sales for the nine months ended September 30, 2019 were $279.0 million as compared to net sales of $252.0 million for the nine months ended September 30, 2018, an increase of $27.0 million, or 10.7%. This increase is due primarily to retail and e-commerce sales growth of $26.9 million or 43.1%, driven by growing demand in direct to consumer channels. Retail sales grew largely due to ten new retail store openings since September 2018 (bringing the total store count to fifty-four as of September 30, 2019). Net sales were further increased through strong sales growth at Beyond of $5.7 million or 54.8%, driven by increased contract business. Through the Beyond product category,

5.11 offers technical survival outerwear systems engineered for missions in extreme temperatures. The increase in net sales for the nine months ended September 30, 2019 as compared to the corresponding period in the prior year was offset by a $5.9 million decline in professional sales.

~~Gross profit~~

Gross profit as a percentage of net sales was 49.0% in the nine months ended September 30, 2019 as compared to 47.3% for the nine months ended September 30, 2018. The prior period cost of sales included a higher level of chargebacks and discretionary discounts granted to customers as 5.11 worked through the backlog associated with challenges experienced while implementing the new ERP system. For the nine months ended September 30, 2019, gross profit as a percentage of net sales was positively impacted by channel mix as direct to consumer sales, which realize higher gross profit than wholesale sales, grew significantly versus the prior period.

~~Selling, general and administrative expense~~

Selling, general and administrative expense for the nine months ended September 30, 2019 was $115.9 million, or 41.6% of net sales compared to $108.7 million, or 43.1% of net sales for the comparable period in 2018. The decrease in selling, general and administrative expense as a percentage of net sales was primarily due to a higher level of expense associated with the move into 5.11’s new Manteca warehouse facility, which did not reoccur in the nine months ended September 30, 2019. The decrease in selling, general and administrative expense as a percentage of net sales was further impacted by leveraging and controlling travel expenses for the nine months ended September 30, 2019. This decrease was slightly offset by a higher accrual for performance-based bonus in 2019, which did not occur in the nine months ended September 30, 2018.

~~Income from operations~~

Income from operations for the nine months ended September 30, 2019 was $13.4 million, an increase of $10.2 million when compared to income from operations of $3.1 million for the same period in 2018, based on the factors described above.

Ergobaby


	Three months ended								Nine months ended								Three months ended
	September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018				March 31, 2020				March 31, 2019
Net sales	$	23,318	100.0	%	$	24,260	100.0	%	$	68,741	100.0	%	$	70,376	100.0	%	$	19,649	100.0	%	$	22,452	100.0	%
Gross profit	$	14,808	63.5	%	$	16,028	66.1	%	$	43,599	63.4	%	$	46,751	66.4	%	$	12,766	65.0	%	$	14,218	63.3	%
SG&A	$	9,634	41.3	%	$	9,890	40.8	%	$	28,593	41.6	%	$	30,644	43.5	%	$	9,256	47.1	%	$	9,132	40.7	%
Operating income	$	3,220	13.8	%	$	4,191	17.3	%	$	9,151	13.3	%	$	10,106	14.4	%	$	1,554	7.9	%	$	3,136	14.0	%

Three months ended ~~September 30, 2019~~March 31, 2020 compared to three months ended ~~September 30, 2018~~March 31, 2019

Net sales

Net sales for the three months ended ~~September 30, 2019~~March 31, 2020 were ~~$23.3~~$19.6 million, a decrease of ~~$0.9~~$2.8 million, or ~~3.9%~~12.5%, compared to the same period in ~~2018.~~2019. During the three months ended ~~September 30, 2019,~~March 31, 2020, international sales were approximately ~~$16.8~~$13.4 million, representing ~~an increase~~a decrease of ~~$0.7~~$1.7 million over the corresponding period in ~~2018,~~2019, primarily as a result of ~~increased~~timing of sales volume at Ergobaby's Asia-Pacific ~~distributors.~~distributors and decreased sales at key European accounts. Domestic sales were ~~$6.5~~$6.3 million in the ~~third~~first quarter of ~~2019,~~2020, reflecting a decrease of ~~$1.6~~$1.0 million compared to the corresponding period in ~~2018.~~2019. The decrease in domestic sales was driven by ~~both~~ the ~~Ergobaby and~~ Tula ~~brands,~~brand, primarily in the specialty account channel.

Gross profit

Gross profit as a percentage of net sales was ~~63.5%~~65.0% for the quarter ended ~~September 30, 2019,~~March 31, 2020, as compared to ~~66.1%~~63.3% for the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~decrease~~increase in gross profit as a percentage of sales was due to the mix of products sold, reduced freight costs and a ~~shift~~reduction in warranty expense during the ~~sales mix from higher margin channels to lower margin channels and an increase in promotional discounts~~ quarter ~~over quarter.~~ended March 31, 2020.

Selling, general and administrative expense

Selling, general and administrative expense ~~decreased quarter over quarter but increased~~ as a percentage of net sales increased quarter over quarter, with expense of ~~$9.6~~$9.3 million, or ~~41.3%~~47.1% of net sales for the three months ended ~~September 30, 2019~~March 31, 2020 as compared to ~~$9.9~~$9.1 million or ~~40.8%~~40.7% of net sales for the same period of ~~2018.~~2019. The increase ~~in selling, general and administrative~~

~~expense as a percentage of net sales in the three months ended September 30, 2019 as compared to the comparable period in the prior year is due to the write~~-~~off of old tooling assets and additional legal fees during the current quarter~~.

~~Income from operations~~

~~Income from operations for the three months ended September 30, 2019 decreased $1.0 million, compared to the same period of 2018, based on the factors noted above.~~

~~Nine months ended September 30, 2019 compared to nine months ended September 30, 2018~~

~~Net sales~~

Net sales for the nine months ended September 30, 2019 were $68.7 million, a decrease of $1.6 million, or 2.3%, compared to the same period in 2018. During the nine months ended September 30, 2019, international sales were approximately $48.0 million, representing an increase of $3.4 million over the corresponding period in 2018, primarily as a result of increased sales volume at Ergobaby's Asia-Pacific distributors. Domestic sales were $20.7 million in the first nine months of 2019, reflecting a decrease of $5.0 million compared to the corresponding period in 2018. The decrease in domestic sales was primarily the result of a decline in sales in both the Ergobaby and Tula brands.

~~Gross profit~~

Gross profit as a percentage of net sales was 63.4% for the nine months ended September 30, 2019, as compared to 66.4% for the nine months ended September 30, 2018. The decrease in gross profit was due to a shift in the sales mix from higher margin channels to lower margin channels.

~~Selling, general and administrative expense~~

Selling, general and administrative expense decreased $2.1 million for the nine months ended September 30, 2019 as compared to the corresponding period in the prior year, with expense of $28.6 million, or 41.6% of net sales for the nine months ended September 30, 2019 as compared to $30.6 million or 43.5% of net sales for the corresponding period in 2018. The decrease in selling, general and administrative expense as a percentage of net sales in the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 as compared to the comparable period in the prior year is due to ~~expenses~~timing of distributor sales and additional legal expense incurred related to a patent infringement case that was resolved in the ~~bankruptcy of a large U.S. retail customer that were incurred~~Company’s favor in the first quarter of ~~2018, reduction in marketing spend, lower variable expenses related to sales, reduced travel and a decrease in payroll expense during the current period.~~this year.

Income from operations

Income from operations for the ~~nine~~three months ended ~~September 30, 2019 was $9.2 million, a decrease of $1.0~~March 31, 2020 decreased $1.6 million, compared to the ~~nine months ended September 30, 2018,~~same period of 2019, based on the factors noted above.

Liberty Safe


	Three months ended								Nine months ended						Three months ended
	September 30, 2019				September 30, 2018				September 30, 2019			September 30, 2018			March 31, 2020				March 31, 2019
Net sales	$	24,729	100.0	%	$	17,872	100.0	%	67,566	100.0	%	61,741	100.0	%	$	24,960	100.0	%	$	22,204	100.0	%
Gross profit	$	5,701	23.1	%	$	4,062	22.7	%	14,771	21.9	%	15,330	24.8	%	$	6,607	26.5	%	$	4,421	19.9	%
SG&A	$	2,850	11.5	%	$	3,452	19.3	%	8,560	12.7	%	10,008	16.2	%	$	3,337	13.4	%	$	2,863	12.9	%
Operating income	$	2,726	11.0	%	$	467	2.6	%	5,812	8.6	%	4,894	7.9	%	$	3,145	12.6	%	$	1,415	6.4	%

Three months ended ~~September 30, 2019~~March 31, 2020 compared to three months ended ~~September 30, 2018~~March 31, 2019

Net sales

Net sales for the quarter ended ~~September 30, 2019~~March 31, 2020 increased approximately ~~$6.9~~$2.8 million, or ~~38.4%~~12.4%, to ~~$24.7~~$25.0 million, compared to the corresponding quarter ended ~~September 30, 2018.~~March 31, 2019. Non-Dealer sales were approximately ~~$15.2~~$9.8 million in the three months ended ~~September 30, 2019~~March 31, 2020 as compared to ~~$7.0~~$7.7 million in the quarter ended ~~September 30, 2018.~~March 31, 2019. The increase in ~~Non Dealer~~Non-Dealer sales of $2.1 million or 27.3% is attributable to the addition of a new customer in the Farm and Fleet ~~channel.~~channel during the second half of 2019 as well as increased sales at sporting goods retailers as compared to the first quarter of 2019. Dealer sales totaled approximately ~~$9.5~~$15.1 million in the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~$10.8~~$14.6 million in the same period in ~~2018,~~2019, representing ~~a decrease~~an increase of ~~$1.3~~$0.5 million or ~~12.0%~~3.4%.

Gross profit

Gross profit as a percentage of net sales totaled approximately ~~23.1%~~26.5% and ~~22.7%~~19.9% for the quarters ended ~~September 30,~~March 31, 2020 and March 31, 2019, ~~and September 30, 2018,~~ respectively. The increase in gross profit as a percentage of net sales during the three months ended ~~September 30, 2019~~March 31, 2020 compared to the same period in ~~2018~~2019 is primarily attributable to favorable manufacturing ~~variance~~variances as a result of increased production ~~volume.~~volume, and a decrease in material costs in the first quarter of 2020 as compared to the first quarter of 2019 when domestic steel prices were trending higher as a result of steel tariffs.

Selling, general and administrative expense

Selling, general and administrative expense was $3.3 million for the three months ended March 31, 2020 compared to $2.9 million for the three months ended ~~September 30, 2019 compared to $3.5 million for the three months ended September 30, 2018.~~March 31, 2019. The ~~decrease~~increase in selling, general and administrative expense during the ~~current~~first quarter of 2020 is primarily ~~related to planned expense reductions and the timing of annual~~from increased advertising ~~spend.~~expenses. Selling, general and administrative expense represented ~~11.5%~~13.4% of net sales in the three months ended ~~September 30, 2019~~March 31, 2020 and ~~19.3%~~12.9% of net sales for the same period of ~~2018.~~2019.

Income from operations

Income from operations increased during the three months ended ~~September 30, 2019~~March 31, 2020 to ~~$2.7~~$3.1 million, as compared to ~~$0.5~~$1.4 million in the corresponding period in ~~2018.~~2019. This increase was ~~primarily~~ a result of the factors noted above.

~~Nine months ended September 30, 2019 compared to nine months ended September 30, 2018~~

~~Net sales~~

Net sales for the nine months ended September 30, 2019 increased approximately $5.8 million, or 9.4%, to $67.6 million, compared to the corresponding nine months ended September 30, 2018. Non-Dealer sales were approximately $31.0 million in the nine months ended September 30, 2019 compared to $24.2 million for the nine months ended September 30, 2018, representing an increase of $6.8 million, or 28.1%. The increase is Non-Dealer sales was primarily due to the addition of a new customer in the Farm and Fleet channel. Dealer sales totaled approximately $36.6 million in the nine months ended September 30, 2019 compared to $37.5 million in the same period in 2018, representing a decrease of $0.9 million or 2.4%.

~~Gross profit~~

Gross profit as a percentage of net sales totaled approximately 21.9% and 24.8% for the nine months ended September 30, 2019 and September 30, 2018, respectively. The decrease in gross profit as a percentage of net sales during the nine months ended September 30, 2019 compared to the same period in 2018 is primarily attributable to increased raw material costs in the first half of the year as well as changes in freight and advertising costs for certain customers in the current year which has decreased the margins for those customers.

~~Selling, general and administrative expense~~

Selling, general and administrative expense was $8.6 million for the nine months ended September 30, 2019 compared to $10.0 million for the nine months ended September 30, 2018. The decrease in selling, general and administrative expense during the first nine months of 2019 is primarily related to planned expense reductions and the timing of annual adverting spend. Selling, general and administrative expense represented 12.7% of net sales in the nine months ended September 30, 2019 and 16.2% of net sales for the same period of 2018.

~~Income from operations~~

~~Income from operations increased $0.9 million during the nine months ended September 30, 2019 to $5.8 million, compared to the corresponding period in 2018.~~

Velocity Outdoor


	Three months ended									Nine months ended									Three months ended
	September 30, 2019					September 30, 2018				September 30, 2019					September 30, 2018				March 31, 2020					March 31, 2019
Net sales	$	46,647		100.0	%	$	34,289	100.0	%	$	107,395		100.0	%	$	94,266	100.0	%	$	30,390		100.0	%	$	31,137	100.0	%
Gross profit	$	13,633		29.2	%	$	9,171	26.7	%	$	30,451		28.4	%	$	26,474	28.1	%	$	7,943		26.1	%	$	9,287	29.8	%
SG&A	$	5,747		12.3	%	$	5,993	17.5	%	$	17,491		16.3	%	$	17,335	18.4	%	$	6,699		22.0	%	$	6,543	21.0	%
Impairment expense	$	33,381		71.6	%	$	—	—	%	$	33,381		31.1	%	$	—	—	%
Operating income (loss)	$	(27,902	)	(59.8	)%	$	1,833	5.3	%	$	(27,635	)	(25.7	)%	$	5,125	5.4	%
Operating (loss) income																			$	(1,164	)	(3.8	)%	$	341	1.1	%

Three months ended ~~September 30, 2019~~March 31, 2020 compared to three months ended ~~September 30, 2018~~March 31, 2019

Net sales

Net sales for the three months ended ~~September 30, 2019~~March 31, 2020 were ~~$46.6~~$30.4 million, ~~an increase~~a decrease of ~~$12.4~~$0.7 million or ~~36.0%~~2.4%, compared to the same period in ~~2018. Ravin, which was acquired in September of 2018, had a full quarter of sales in 2019, contributing $11.8 million to the increase in net sales.~~2019. The ~~remainder of the increase~~decrease in net sales for the three months ended ~~September 30, 2019~~March 31, 2020 is primarily due to ~~sales~~Ravin new product introduction in ~~the~~2019 which was not repeated in 2020 partially offset by year over year growth in Crosman ~~archery~~Airgun Consumable and Archery product ~~line.~~lines.

Gross profit

Gross profit for the quarter ended ~~September 30, 2019 increased $4.5~~March 31, 2020 decreased $1.3 million as compared to the quarter ended ~~September 30, 2018.~~March 31, 2019. Gross profit as a percentage of net sales was ~~29.2%~~26.1% for the three months ended ~~September 30, 2019~~March 31, 2020 as compared to ~~26.7%~~29.8% in the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~increase~~decrease in gross profit as a percentage of net sales was primarily attributable to the ~~increase in~~impact of Ravin product mix along with a higher concentration of Crosman Consumable sales inversus the ~~archery product line.~~prior year.

Selling, general and administrative expense

Selling, general and administrative expense for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$5.7~~$6.7 million, or ~~12.3%~~ 22.0%

of net sales compared to ~~$6.0~~$6.5 million, or ~~17.5%~~21.0% of net sales for the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~decrease~~increase in selling, general and administrative expense for the three months ended ~~September 30, 2019~~March 31, 2020 is primarily related to ~~transaction fees paid in the prior year related~~increased recruitment and compensation costs for changes made to the ~~Ravin acquisition~~, ~~partially offset by the effect of the Ravin acquisition.~~executive management team.

~~Impairment expense~~

As a result of operating results below forecasts in the current period as well as a re-forecast of the Velocity business in which planned earnings and revenue fell below the forecasts of prior periods, Velocity performed an interim impairment test of their goodwill during the quarter ended September 30, 2019, which resulted in recording impairment expense of $33.4 million.

~~Income (loss)~~(Loss) income from operations

Loss from operations for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$27.9~~$1.2 million, a decrease of ~~$29.7~~$1.5 million when compared to income from operations of ~~$1.8~~$0.3 million for the same period in ~~2018,~~2019, primarily as a result of the ~~goodwill impairment expense.~~

~~Nine months ended September 30, 2019 compared to nine months ended September 30, 2018~~

~~Net sales~~

Net sales for the nine months ended September 30, 2019 were $107.4 million, an increase of $13.1 million or 13.9%, compared to the same period in 2018. The increase in net sales for the nine months ended September 30, 2019 is primarily due to the add-on acquisition of Ravin Crossbows in September 2018, partially offset by sales associated with the non-recurring Junior Reserve Officer Training Corps (JROTC) contract that shipped in the first half of 2018. Ravin had net sales of $31.6 million in the nine months ended September 30, 2019 compared to $4.4 million in the nine months ended September 30, 2018.

~~Gross profit~~

Gross profit as a percentage of net sales was 28.4% for the nine months ended September 30, 2019 as compared to 28.1% in the nine months ended September 30, 2018. The increase in gross profit of $4.0 million was driven primarily by the impact of the acquisition of Ravin Crossbows.

~~Selling, general and administrative expense~~

Selling, general and administrative expense for the nine months ended September 30, 2019 was $17.5 million, or 16.3% of net sales compared to $17.3 million, or 18.4% of net sales for the nine months ended September 30, 2018. The decrease in selling, general and administrative expense as a percentage of net sales for the nine months ended September 30, 2019 is primarily related to the effect of the acquisition of Ravin partially offset by transaction fees paid in the prior year related to the acquisition.

~~Impairment expense~~

~~Income (loss) from operations~~

Loss from operations for the nine months ended September 30, 2019 was $27.6 million, a decrease of $32.8 million when compared to income from operations of $5.1 million for the same period in 2018, primarily as a result of the goodwill impairment expense.factors noted above.

Niche Industrial Businesses

Advanced Circuits


	Three months ended								Nine months ended						Three months ended
	September 30, 2019				September 30, 2018				September 30, 2019			September 30, 2018			March 31, 2020				March 31, 2019
Net sales	$	21,897	100.0	%	$	23,424	100.0	%	67,405	100.0	%	68,454	100.0	%	$	21,696	100.0	%	$	23,069	100.0	%
Gross profit	$	9,964	45.5	%	$	11,067	47.2	%	31,029	46.0	%	31,582	46.1	%	$	9,737	44.9	%	$	10,604	46.0	%
SG&A	$	3,627	16.6	%	$	3,739	16.0	%	11,155	16.5	%	11,085	16.2	%	$	3,790	17.5	%	$	3,767	16.3	%
Operating income	$	6,122	28.0	%	$	6,902	29.5	%	19,087	28.3	%	19,202	28.1	%	$	5,738	26.4	%	$	6,481	28.1	%

Three months ended ~~September 30, 2019~~March 31, 2020 compared to three months ended ~~September 30, 2018~~March 31, 2019

Net sales

Net sales for the three months ended ~~September 30, 2019~~March 31, 2020 were ~~$21.9~~$21.7 million, a decrease of approximately ~~$1.5~~$1.4 million or ~~6.5%~~6.0% compared to the three months ended ~~September 30, 2018.~~March 31, 2019. The decrease in net sales ~~was due primarily to a facility move~~ in ~~its Arizona location that halted operations for a portion of September 2019 and led to a decrease in sales during~~ the third quarter. Net sales of Quick-Turn Small-Run PCBs decreased by approximately $1.0 million, Quick-Turn Production PCBs decreased by approximately $1.2 million and Long-Lead Time PCBs decreased by approximately $0.3 million whenquarter ended March 31, 2020 as compared to the quarter ended ~~September 30, 2018. These~~March 31, 2019 was primarily attributable to decreases ~~were~~in sales of Long-Lead Time/Other of approximately $0.8 million, Subcontract of approximately $0.6 million, Quick-Turn Small-Run of approximately $0.3 million and Assembly of approximately $0.2 million in the quarter ended March 31, 2020 as compared to the quarter ended March 31, 2019. This was partially offset by ~~increases~~an increase in ~~Assmbly,~~Quick-Turn Production of approximately $0.3 million and a decrease in promotions during the quarter ended ~~September 30,~~March 31, 2020 of $0.2 million as compared to the quarter ended March 31, 2019. Quick-Turn Small-Run PCBs comprised approximately 17.0% of gross sales and Quick-Turn Production PCBs represented approximately 30.7% of gross sales for the third quarter of 2019. Quick-Turn Small-Run PCBs comprised approximately 19.6% of gross sales and Quick-Turn Production PCBs represented approximately 33.3% of gross sales for the third quarter of 2018.

Gross profit

Gross profit as a percentage of net sales decreased ~~170~~110 basis points during the three months ended ~~September 30, 2019~~March 31, 2020 compared to the corresponding period in ~~2018 (45.5%~~2019 (44.9% at ~~September 30, 2019~~March 31, 2020 compared to ~~47.2%~~46.0% at ~~September 30, 2018)~~March 31, 2019) primarily as a result of sales mix.

Selling, general and administrative expense

Selling, general and administrative expense was approximately ~~$3.6~~$3.8 million in both the three months ended ~~September 30, 2019 compared to $3.7 million in~~March 31, 2020 and the three months ended ~~September 30, 2018.~~March 31, 2019. Selling, general and administrative expense represented ~~16.6%~~17.5% of net sales for the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~16.0%~~16.3% of net sales in the corresponding period in ~~2018.~~

2019.

Income from operations

Income from operations for the three months ended ~~September 30, 2019~~March 31, 2020 was approximately ~~$6.1~~$5.7 million compared to ~~$6.9~~$6.5 million in the same period in ~~2018,~~2019, a decrease of approximately ~~$0.8 million, principally as a result of the factors described above.~~

~~Nine months ended September 30, 2019 compared to nine months ended September 30, 2018~~

~~Net sales~~

Net sales for the nine months ended September 30, 2019 were $67.4 million, a decrease of approximately $1.0 million or 1.5% compared to the nine months ended September 30, 2018. The decrease in net sales was due primarily to a facility move in its Arizona location that halted operations for a portion of September 2019 and led to a decrease in sales during the third quarter. The decrease in net sales was due to decreased sales in Quick-Turn Production PCBs by approximately $2.3 million, and Quick-Turn Small-Run by approximately $0.9 million. This was partially offset by increases in Long-Lead Time PCBs by approximately $0.3 million, Assembly approximately $0.7 million, and a decrease in promotions by approximately $1.2 million. Quick-Turn Small-Run PCBs comprised approximately 18.6% of gross sales and Quick-Turn Production PCBs represented approximately 31.4% of gross sales for the nine months ended September 30, 2019. Quick-Turn Small-Run PCBs comprised approximately 19.3% of gross sales and Quick-Turn Production PCBs represented approximately 33.5% of gross sales for the nine months ended September 30, 2018.

~~Gross profit~~

Gross profit as a percentage of net sales decreased 10 basis points during the nine months ended September 30, 2019 compared to the corresponding period in 2018 (46.0% at September 30, 2019 compared to 46.1% at September 30, 2018) primarily as a result of sales mix.

~~Selling, general and administrative expense~~

Selling, general and administrative expense was approximately $11.2 million in the nine months ended September 30, 2019 compared to $11.1 million in the nine months ended September 30, 2018. Selling, general and administrative expense represented 16.5% of net sales for the nine months ended September 30, 2019 compared to 16.2% of net sales in the corresponding period in 2018.

~~Income from operations~~

~~Income from operations for the nine months ended September 30, 2019 was approximately $19.1 million compared to $19.2 million in the same period in 2018, a decrease of approximately $0.1~~ million, principally as a result of the factors described above.

Arnold


	Three months ended								Nine months ended						Three months ended
	September 30, 2019				September 30, 2018				September 30, 2019			September 30, 2018			March 31, 2020				March 31, 2019
Net sales	$	30,895	100.0	%	$	29,891	100.0	%	90,404	100.0	%	90,486	100.0	%	$	29,558	100.0	%	$	30,028	100.0	%
Gross profit	$	8,334	27.0	%	$	7,588	25.4	%	23,425	25.9	%	24,082	26.6	%	$	7,914	26.8	%	$	7,240	24.1	%
SG&A	$	4,718	15.3	%	$	4,321	14.5	%	14,205	15.7	%	14,177	15.7	%	$	5,326	18.0	%	$	4,798	16.0	%
Operating income	$	2,681	8.7	%	$	2,287	7.7	%	6,385	7.1	%	6,957	7.7	%	$	1,653	5.6	%	$	1,477	4.9	%

Three months ended ~~September 30, 2019~~March 31, 2020 compared to three months ended ~~September 30, 2018~~March 31, 2019

Net sales

Net sales for the three months ended ~~September 30, 2019~~March 31, 2020 were approximately ~~$30.9~~$29.6 million, ~~an increase~~a decrease of ~~$1.0~~$0.5 million compared to the same period in ~~2018.~~2019. The ~~increase~~decrease in net sales is primarily a result of ~~increased~~decreased demand from our European markets in ~~the Aerospace and Defense market.~~various industries as a result of a slowing European economy. International sales were ~~$12.7~~$11.0 million in the three months ended ~~September 30, 2019~~March 31, 2020 and ~~$11.7~~$12.1 million in the three months ended ~~September 30, 2018.~~March 31, 2019.

Gross profit

Gross profit for the three months ended ~~September 30, 2019~~March 31, 2020 was approximately ~~$8.3~~$7.9 million compared to approximately ~~$7.6~~$7.2 million in the same period of ~~2018.~~2019. Gross profit as a percentage of net sales increased ~~from 25.4%~~to 26.8% for the quarter ended ~~September��30, 2018 to 27.0%~~March 31, 2020 from 24.1% in the quarter ended ~~September 30,~~March 31, 2019 principally due to ~~favorable sales mix.~~product mix and improvements in operating efficiencies.

Selling, general and administrative expense

Selling, general and administrative expense in the three month period ended ~~September 30, 2019~~March 31, 2020 was ~~$4.7~~$5.3 million, an increase in expense of approximately ~~$0.4~~$0.5 million compared to ~~$4.3~~$4.8 million ~~in selling, general and administrative expense~~ for the three months ended ~~September 30, 2018.~~March 31, 2019. Selling, general and administrative expense was ~~15.3%~~18.0% of net sales in the three months ended ~~September 30, 2019~~March 31, 2020 and ~~14.5%~~16.0% in the three months ended ~~September 30, 2018.~~March 31, 2019. The increase in selling, general and administrative expense as a percentage of net sales was due to an increase in ~~investments in research and development as well as non-recurring expenses.~~reserves established for accounts receivable during the first quarter of 2020.

Income from operations

Income from operations for the three months ended ~~September 30, 2019~~March 31, 2020 was approximately ~~$2.7~~$1.7 million, an increase of ~~$0.4~~$0.2 million when compared to the same period in ~~2018,~~2019, as a result of the factors noted above.

~~Nine months ended September 30, 2019 compared to nine months ended September 30, 2018~~

~~Net sales~~

Net sales for the nine months ended September 30, 2019 were approximately $90.4 million, a decrease of $0.1 million compared to the corresponding period in 2018. International sales were $36.6 million in the nine months ended September 30, 2019 and $36.1 million in the nine months ended September 30, 2018.

~~Gross profit~~

Gross profit for the nine months ended September 30, 2019 was approximately $23.4 million compared to approximately $24.1 million in the same period of 2018. Gross profit as a percentage of net sales decreased from 26.6% for the nine months ended September 30, 2018 to 25.9% in the nine months ended September 30, 2019 principally as a result of unfavorable sales mix.

~~Selling, general and administrative expense~~

Selling, general and administrative expense was approximately $14.2 million in both the nine months ended September 30, 2019 and the nine months ended September 30, 2018, and represented 15.7% of net sales in both periods.

~~Income from operations~~

Income from operations for the nine months ended September 30, 2019 was approximately $6.4 million, a decrease of $0.6 million when compared to the same period in 2018, as a result of unfavorable sales mix.

Foam Fabricators

Three months ended Nine months ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
Pro forma
Net sales $ 31,304
100.0 % $ 33,337
100.0 % $ 93,634
100.0 % $ 97,021
100.0 %
Gross profit $ 8,928
28.5 % $ 9,447
28.3 % $ 26,772
28.6 % $ 25,985
26.8 %
SG&A $ 2,541
8.1 % $ 3,101
9.3 % $ 8,023
8.6 % $ 10,560
10.9 %
Operating income $ 4,141
13.2 % $ 4,100
12.3 % $ 12,011
12.8 % $ 9,054
9.3 %

Pro forma financial information for Foam Fabricators for the nine months ended September 30, 2018 includes pre-acquisition results of operations for the period from January 1, 2018 through February 15, 2018, the date of acquisition of Foam, for comparative purposes. The historical results of Foam Fabricators have been adjusted to reflect the purchase accounting adjustments recorded in connection with the acquisition: $0.2 million in stock compensation expense and $1.0 million in amortization expense, as well as $0.1 million in management fees that would have been incurred by Foam Fabricators if we owned the company during this period.



	Three months ended
	March 31, 2020				March 31, 2019
Net sales	$	28,383	100.0	%	$	30,682	100.0	%
Gross profit	$	8,665	30.5	%	$	8,488	27.7	%
SG&A	$	2,907	10.2	%	$	2,736	8.9	%
Operating income	$	3,512	12.4	%	$	3,506	11.4	%

Three months ended ~~September 30, 2019~~March 31, 2020 compared to three months ended ~~September 30, 2018~~March 31, 2019

Net sales

Net sales for the quarter ended ~~September 30, 2019~~March 31, 2020 were ~~$31.3~~$28.4 million, a decrease of ~~$2.0~~$2.3 million, or ~~6.1%~~7.5%, compared to the quarter ended ~~September 30, 2018.~~March 31, 2019. The decrease in net sales during the quarter was primarily due to a ~~nonrecurring~~slow down in sales in the appliance and automotive customer ~~order from the prior year and reduced demand~~sector, partially offset by an increase in the insulated shipping container ~~product category during~~sector, and nonrecurring construction revenue from the ~~most recent quarter.~~first quarter of 2019.

Gross profit

Gross profit as a percentage of net sales was ~~28.5%~~30.5% and ~~28.3%~~27.7% for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The increase in gross profit as a percentage of net sales in the quarter ended ~~September 30, 2019~~March 31, 2020 was primarily due to the decreasing price of expanded polystyrene ("EPS") resin. A majority of Foam Fabricator's products are made with EPS resin, an oil and natural gas derived polymer with an added expansion agent, therefore raw material costs will fluctuate based on the price of oil and natural gas.

Selling, general and administrative expense

Selling, general and administrative expense for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$2.5~~$2.9 million as compared to ~~$3.1~~$2.7 million for the three months ended ~~September 30, 2018, a decrease~~March 31, 2019, an increase of ~~$0.6~~$0.2 million. Selling, general and administrative expense for the three months ended ~~September~~March 30, ~~2018~~2019 included $0.3 million in integration service fees paid to CGM. Excluding the effect of the integration service fee, the selling, general and administrative expense in the ~~current~~first quarter ~~is comparable~~of 2020 increased approximately $0.5 million primarily due to ~~the prior year quarter.~~an increase in professional fees and costs incurred to upgrade its enterprise resource planning system.

Income from operations

Income from operations was ~~$4.1~~$3.5 million in both the three months ended ~~September 30, 2019~~March 31, 2020 and the three months ended ~~September 30, 2018,~~March 31, 2019, with the decrease in net sales and increase in selling, general and administrative expense offset by a decrease in cost of ~~sales and selling, general and administrative expense.~~sales.

Sterno



	Three months ended
	March 31, 2020				March 31, 2019
Net sales	$	83,032	100.0	%	$	91,196	100.0	%
Gross profit	$	18,600	22.4	%	$	22,354	24.5	%
SG&A	$	8,953	10.8	%	$	10,093	11.1	%
Operating income	$	5,269	6.3	%	$	7,982	8.8	%

~~Nine~~Three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~pro forma nine~~three months ended ~~September 30, 2018~~March 31, 2019

Net sales

Net sales for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 were ~~$93.6~~approximately $83.0 million, a decrease of ~~$3.4~~$8.2 million, or ~~3.5%~~9.0%, compared to the ~~nine months ended September 30, 2018.~~same period in 2019. The ~~decrease in~~ net sales ~~was primarily due to a nonrecurring customer from the prior year as well as well as~~variance reflects a decrease in sales at Sterno Products and Sterno Home as a result of the effect of COVID-19 on the food service and retail industries during the latter half of March 2020, partially offset by favorable sales volume at Rimports of wax and essential oils in the ~~automotive~~first quarter of 2020. We expect the food service and ~~protective packaging categories in~~retail industries to continue to be negatively impacted during the ~~current period.~~second quarter and potentially beyond by COVID-19.

Gross profit

Gross profit as a percentage of net sales was 28.6% and 26.8% for the nine months ended September 30, 2019 and 2018, respectively. Cost of sales for the nine months ended September 30, 2018 included $0.7 million of expense related to the amortization of inventory step-up resultingdecreased from the purchase price allocation of Foam Fabricators. Excluding the effect of the inventory step-up, prior year gross profit as a percentage of net sales was 27.5%. The increase in gross profit as a percentage of net sales in the nine months ended September 30, 2019 was due to decreasing EPS prices in the current year.

~~Selling, general and administrative expense~~

Selling, general and administrative expense for the nine months ended September 30, 2019 was $8.0 million as compared to $10.6 million for the nine months ended September 30, 2018, a decrease of $2.5 million. Selling, general and administrative expense for the nine months ended September 30, 2018 included $1.5 million in transaction expenses related to the acquisition and $1.4 million in incremental integration service fees paid to CGM. Excluding the acquisition expenses and incremental integration service fees, selling, general and administrative expense for the nine months ended September 30, 2018 was $7.7 million, which is consistent with the expenses incurred in the current period.

~~Income from operations~~

Income from operations was $12.0 million for the nine months ended September 30, 2019 as compared to $9.1 million for the nine months ended September 30, 2018, an increase of $3.0 million, primarily as a result of the factors noted above.

~~Sterno~~

Three months ended Nine months ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
Pro forma
Net sales $ 111,470
100.0 % $ 113,868
100.0 % 289,131
100.0 % $ 291,864
100.0 %
Gross profit $ 26,969
24.2 % $ 26,664
23.4 % 71,989
24.9 % $ 67,381
23.1 %
SG&A $ 9,855
8.8 % $ 10,577
9.3 % 30,109
10.4 % $ 31,161
10.7 %
Operating income $ 12,724
11.4 % $ 11,634
10.2 % 28,821
10.0 % $ 22,860
7.8 %

Pro forma financial information for Sterno for the nine months ended September 30, 2018 includes pre-acquisition results of operations for Rimports, which was acquired by Sterno on February 26, 2018, for the period from January 1, 2018 through the date of acquisition for comparative purposes. The historical results of Rimports have been adjusted to reflect an additional $1.6 million in amortization expense recorded in connection with the purchase accounting adjustments related to the acquisition.

~~Three months ended September 30, 2019 compared to three months ended September 30, 2018~~

~~Net sales~~

~~Net sales~~24.5% for the three months ended ~~September 30,~~March 31, 2019 ~~were approximately $111.5 million, a decrease of $2.4 million, or 2.1%, compared~~ to the same period in 2018. The net sales variance reflects a decrease in sales of higher levels of chargebacks and rebates compared to the third quarter of 2018, and a decrease in sales at Rimports’ largest retail customer due to the timing of certain holiday order shipments shifting to the fourth quarter, ~~partially offset by an increase in pricing and sales volume at Sterno Products~~.

~~Gross profit~~

~~Gross profit as a percentage of net sales increased from 23.4% for the three months ended September 30, 2018 to 24.2%~~22.4% for the same period ended September 30, 2019. In the third quarter of 2018, Sterno recognized an additional $2.0 million in expense related to the amortization of the inventory step-up resulting from the purchase price allocation of the Rimports acquisition. After eliminating the effect of the purchase price allocation in the prior year, gross profit as a percentage of sales was 25.2% for the three months ended September 30, 2018.March 31, 2020. The decrease in gross profit ~~percentage~~in the first quarter of ~~100 basis points~~2020 as compared to the first quarter ~~ended September 30, 2018 reflects a shift in sales~~of 2019 was attributable to product mix, towith lower margin ~~products~~sales in the first quarter of 2020, higher freight and ~~increased costs at Rimports due to new product launches, offset by favorable chemical costs at Sterno Products.~~tariff costs.

Selling, general and administrative expense

Selling, general and administrative expense for the three months ended ~~September 30, 2019~~March 31, 2020 was approximately ~~$9.9~~$9.0 million as compared to ~~$10.6~~$10.1 million for the three months ended ~~September 30, 2018,~~March 31, 2019, a decrease of ~~$0.7~~$1.1 million, reflecting lower salaries, commissions, and ~~salaries at Rimports and Sterno Home in~~various cost savings initiatives implemented to address the ~~current quarter.~~effects of decreased demand from COVID-19. Selling, general and administrative expense represented ~~8.8%~~10.8% of net sales for the three months ended ~~September 30, 2019~~March 31, 2020 and ~~9.3%~~11.1% for the three months ended ~~September 30, 2018.~~March 31, 2019.

Income from operations

Income from operations for the three months ended ~~September 30, 2019~~March 31, 2020 was approximately ~~$12.7~~$5.3 million, ~~an increase~~a decrease of ~~$1.1~~$2.7 million compared to the three months ended ~~September 30, 2018~~March 31, 2019 based on the factors noted above.

~~Nine months ended September 30, 2019 compared to pro forma nine months ended September 30, 2018~~

~~Net sales~~

Net sales for the nine months ended September 30, 2019 were approximately $289.1 million, a decrease of $2.7 million, or 0.9%, compared to the corresponding period in 2018. The net sales variance reflects a decrease in sales of outdoor lighting products primarily as a result of a shorter spring period in the domestic market due to weather and higher levels of chargebacks and rebates compared to the prior year, offset by an increase in sales volume at Rimports.

~~Gross profit~~

Gross profit as a percentage of net sales increased from 23.1% for the nine months ended September 30, 2018 to 24.9% for the same period ended September 30, 2019. In the nine months ended September 30, 2018, Sterno recognized $6.6 million in costs of goods sold related to the amortization of inventory step-up resulting from the purchase price allocation of the Rimports acquisition. After eliminating the effect of the purchase price allocation in the prior year, gross profit as a percentage of sales for the nine months ended September 30, 2018 was 25.4%. The decrease in gross profit as a percentage of net sales reflects a shift in sales mix to lower margin products and increased costs at Rimports due to new product launches, offset by favorable chemical costs at Sterno Products.

~~Selling, general and administrative expense~~

Selling, general and administrative expense for the nine months ended September 30, 2019 and 2018 was $30.1 million and $31.2 million, respectively, a decrease of $1.1 million. The expense from the prior year reflects $0.6 million in acquisition expenses related to the acquisition of Rimports. Excluding the acquisition expenses, selling, general and administrative expense decreased $0.5 million, reflecting lower commissions, salaries, incentive programs and various cost savings initiatives. Selling, general and administrative expense represented 10.4% of net sales for the nine months ended September 30, 2019 and 10.7%~~for the nine months ended September 30, 2018.~~

~~Income from operations~~

Income from operations for the nine months ended September 30, 2019 was approximately $28.8 million, an increase of $6.0 million compared to the nine months ended September 30, 2018 based on the factors noted above.

Liquidity and Capital Resources

Liquidity

At ~~September 30, 2019,~~March 31, 2020, we had approximately ~~$285.8~~$291.0 million of cash and cash equivalents on hand, an increase of ~~$237.1~~$190.7 million as compared to the year ended December 31, 2019. In March 2020, we drew $200 million under our 2018 ~~primarily as a result~~Revolving Credit Facility to increase our available funds on hand to respond to any changing liquidity needs of our businesses during the ~~proceeds received from our sales of Manitoba Harvest in February 2019 and Clean Earth in June 2019.~~COVID-19 pandemic. The majority of our cash is in non-interest bearing checking accounts or invested in short-term money market accounts and is maintained in accordance with the Company’s investment policy, which identifies allowable investments and specifies credit quality standards. The change in cash and cash equivalents is as follows:

Operating Activities:


	Nine months ended				Three months ended
(in thousands)	September 30, 2019		September 30, 2018		March 31, 2020		March 31, 2019
Cash provided by operating activities	$	31,584	$	58,772
Cash provided by (used in) operating activities					$	33,986	$	(8,936	)

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, cash flows provided by operating activities totaled approximately ~~$31.6~~$34.0 million, which represents a ~~$27.2~~$42.9 million ~~decrease~~increase compared to cash provided by operating activities of $58.8 million during the nine-month period ended September 30, 2018. The decrease in cash provided by operating activities is primarily due to the effect of cash from our discontinued operations and reflects the timing of the sale of Manitoba Harvest and Clean Earth in the current year. Cash used in operating activities of ~~discontinued~~$8.9 million during the three-month period ended March 31, 2019. The increase in cash flows in the first quarter of 2020 is attributable to higher net income from continuing operations in the ~~current~~quarter ended March 31, 2020 as compared to the comparable quarter in the prior year, ~~was $10.1 million while~~and an increase in cash provided by ~~operating activities of discontinued operations was $22.7 million~~working capital. In the prior year, the Company incurred interest expense related to the 2018 Term Loan, which we paid off in the ~~comparable prior year period.~~third and fourth quarter of 2019 using the proceeds from the sale of Clean Earth and our Series C Preferred Share Offering. The ~~prior year reflects a full nine months of operations of our discontinued operations while the current year period reflects the effect~~payoff of the ~~sales~~2018 Term Loan decreased our interest expense in the first quarter of 2020 as compared to the quarter ended March 31, 2019 by approximately $8.5 million. In the quarter ended March 31, 2019, we also recognized a loss of $5.3 million related to the sale of common shares received as part of the consideration for the sale of Manitoba ~~Harvest in February 2019 and Clean Earth in June 2019.~~Harvest. Cash ~~used in~~provided by operating activities for working capital for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was ~~$28.6~~$7.0 million, as compared to cash used in operating activities for working capital of ~~$23.7~~$18.9 million for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The increase in cash ~~used for~~provided by working capital ~~purposes~~ in the current year primarily reflects decreases in accounts receivable and inventory as our businesses attempted to conserve cash in expectation that revenue in the second quarter of 2020 will be negatively impacted by the effect of our acquisitions that occurred in February 2018 which resulted in a significant increase in cash needed to fund working capital, particularly at Rimports, our Sterno add-on acquisition. The decrease in cash flows provided by operating activities in the current year was also attributable to the change in the mark-to-market on our interest rate swap, with the nine months ended September 30, 2018 having an unrealized gain of $4.6 million, and the nine months ending September 30, 2019 having an unrealized loss of $3.5 million, for a net change of $8.1 million due to the change in the present value of future payments and receipts under the interest rate swap agreement.

COVID-19 shelter-in-place orders.

Investing Activities:


	Nine months ended					Three months ended
(in thousands)	September 30, 2019		September 30, 2018			March 31, 2020			March 31, 2019
Cash provided by (used in) investing activities	$	760,148	$	(594,705	)
Cash (used in) provided by investing activities						$	(6,646	)	$	168,944

Cash flows used in investing activities for the three months ended March 31, 2020 totaled $6.6 million, compared to cash provided by investing activities ~~for the nine months ended September 30, 2019 totaled $760.1 million, compared to cash used in investing activities~~ of ~~$594.7~~$168.9 million in the same period of ~~2018. Cash flows from Manitoba Harvest and Clean Earth, which are reflected as discontinued operations, totaled $279.2 million in the current period and reflects the effect of the sale transactions.~~2019. Cash provided by investing activities ~~from continuing operations~~ in the ~~current~~prior year quarter primarily ~~relates~~related to the proceeds received from the ~~sales~~sale of ~~Clean Earth and~~ Manitoba ~~Harvest. In the prior year, we had a platform acquisition~~Harvest, while investing activities in the ~~first quarter, Foam Fabricators, and several add-on acquisitions at our subsidiaries, including the Sterno acquisition of Rimports in February 2018. The total amount spent on acquisitions in the nine~~three months ended September 30, 2018 was approximately $495.1 million. Capital expenditures in the nine months ended September 30, 2019 decreased approximately $12.7 million compared to the same period in the prior year, due primarily to higher than typical expenditures at our 5.11 and Arnold businesses in the prior year.March 31, 2020 reflect capital expenditures. We expect capital expenditures for the full year of ~~2019~~2020 to be approximately ~~$30~~$19 million to ~~$35 million.~~$26 million, which reflects a reduction in our capital spending from the December 31, 2019 expectation in response to the expected effect of COVID-19 on our cash flows.

Financing Activities:


	Nine months ended					Three months ended
(in thousands)	September 30, 2019			September 30, 2018		March 31, 2020		March 31, 2019
Cash (used in) provided by financing activities	$	(557,118	)	$	531,288
Cash provided by (used in) financing activities						$	164,385	$	(172,448	)

Cash flows provided by financing activities totaled approximately $164.4 million during the three months ended March 31, 2020 compared to cash flows used in financing activities ~~totaled approximately $557.1~~of $172.4 million during the ~~nine~~three months ended ~~September 30, 2019 compared to cash flows provided by financing~~

March 31, 2019. Financing activities ~~of $531.3 million during~~in both periods reflect the ~~nine months ended September 30, 2018. The 2018 activity primarily related to the financing~~payment of our ~~acquisitions~~common and preferred share distributions, with a $1.8 million increase in the preferred share distribution as a result of ~~Foam Fabricators and Rimports~~the issuance of our Series C Preferred Shares in ~~February~~November 2019. In the prior year, we used the proceeds from our sale of Manitoba Harvest to repay amounts outstanding under our 2018 ~~which were financed through draws on our 2014~~ Revolving Credit Facility, ~~partially offset by net proceeds of $96.5 million from the Series B Preferred Shares offering~~while in March 2018 which was used to repay a portion of the outstanding amount on the 2014 Revolving Credit Facility. In April 2018, we issued $400.0 million in Senior Notes and amended our credit facility. The proceeds from the issuance of the Senior Notes were used to pay down outstanding amounts under our credit facility. In the current year, we ~~used proceeds from the sales of Manitoba Harvest and Clean Earth to repay the outstanding amount~~drew $200 million on ~~the~~our 2018 Revolving Credit Facility ~~and~~ to ~~pay down $193.8 million on~~increase the cash available for our ~~2018 Term Loan. We~~business. In the quarter ended March 31, 2020, we also ~~paid our distributions on our common and preferred shares, as well as~~made a distribution to the Allocation Member of ~~$51.3~~$9.1 million related ~~primarily~~ to the ~~sales of Manitoba Harvest and Clean Earth.~~five year Holding event for our Sterno business.

Intercompany Debt

A component of our acquisition financing strategy that we utilize in acquiring the businesses we own and manage is to provide both equity capital and debt capital, raised at the parent level through our existing credit facility. Our strategy of providing intercompany debt financing within the capital structure of the businesses that we acquire and manage allows us the ability to distribute cash to the parent company through monthly interest payments and amortization of the principal on these intercompany loans. Each loan to our businesses has a scheduled maturity and each business is entitled to repay all or a portion of the principal amount of the outstanding loans, without penalty, prior to maturity. Certain of our businesses have paid down their respective intercompany debt balances through the cash flow generated by these businesses and we have recapitalized, and expect to continue to recapitalize, these businesses in the normal course of our business. The recapitalization process involves funding the intercompany debt using either cash on hand at the parent or our applicable Credit Facility, and serves the purpose of optimizing the capital structure at our subsidiaries and providing the noncontrolling shareholders with a distribution on their ownership interest in a cash flow positive business. In January 2018, the Company completed a recapitalization at Sterno whereby the Company entered into an amendment to the intercompany loan agreement with Sterno (the "Sterno Loan Agreement"). The Sterno Loan Agreement was amended to (i) provide for term loan borrowings of $57.7 million to fund a distribution to the Company, which owned 100% of the outstanding equity of Sterno at the time of the recapitalization, and (ii) extend the maturity dates of the term loans.

In the first quarter of 2019, we amended the 5.11 intercompany debt agreement to update the definition of capital expenditures to exclude capital expenditures made with respect to 5.11's retail stores from the calculation of the fixed

charge coverage ratio. 5.11 was in compliance with the covenants under their intercompany debt agreement at September 30, 2019. Subsequent to the third quarter of 2018, we amended the Sterno Loan Agreement to increase the amount available to Sterno under their intercompany revolving credit facility. Liberty was not in compliance with the financial covenants under their intercompany loan agreement at December 31, 2018, and we amended the Liberty intercompany debt agreement to grant a waiver to them through the quarter ended December 31, 2019. Liberty was in compliance with all financial covenants at September 30, 2019. Except as previously noted, allAll of our subsidiaries were in compliance with the financial covenants included within their intercompany credit arrangements at ~~September 30, 2019.~~March 31, 2020.

As of ~~September 30, 2019,~~March 31, 2020, we had the following outstanding loans due from each of our businesses:


(in thousands)
5.11 Tactical	$	197,015
5.11			$	183,890
Ergobaby	$	38,082	$	35,033
Liberty	$	49,474	$	44,524
Velocity Outdoor	$	122,776	$	116,940
Advanced Circuits	$	66,245	$	60,854
Arnold	$	75,530	$	76,630
Foam Fabricators	$	95,450	$	85,373
Sterno	$	254,076	$	231,761

Our primary source of cash is from the receipt of interest and principal on the outstanding loans to our businesses. Accordingly, we are dependent upon the earnings of and cash flow from these businesses, which are available for (i) operating expenses; (ii) payment of principal and interest under our 2018 Credit Facility; (iii) payments to CGM due pursuant to the MSA and the LLC Agreement; (iv) cash distributions to our shareholders; and (v) investments in future acquisitions. Payments made under (iii) above are required to be paid before distributions to shareholders and may be significant and exceed the funds held by us, which may require us to dispose of assets or incur debt to fund such expenditures.

We believe that we currently have sufficient liquidity and capital resources to meet our existing obligations, including quarterly distributions to our shareholders, as approved by our board of directors, over the next twelve months.

Financing Arrangements

2018 Credit Facility

In April 2018, we entered into an Amended and Restated Credit Agreement (the "2018 Credit Facility") to amend and restate the 2014 Credit Facility. The 2018 Credit Facility provides for (i) revolving loans, swing line loans and letters of credit (the “2018 Revolving Credit Facility”) up to a maximum aggregate amount of $600 million, ~~(the “2018 Revolving Loan Commitment”),~~ and (ii) a $500 million term loan (the “2018 Term Loan”). The 2018 Credit Facility also permits the Company, prior to the applicable maturity date, to increase the revolving loan commitment and/or obtain additional term loans in an aggregate amount of up to $250 million (the “Incremental Loans”), subject to certain restrictions and conditions. In Jul 2019, we repaid $193.8 million of the 2018 Term Loan, and in November 2019, we repaid the remaining $298.8 million due under the 2018 Term Loan.

We had ~~$596.4~~$396.4 million in net availability under the 2018 Revolving Credit Facility at ~~September 30, 2019.~~March 31, 2020. The outstanding borrowings under the 2018 Revolving Credit Facility include $3.6 million of outstanding letters of credit at September 30, 2019. At September 30, 2019, we had $298.8 million outstanding on the 2018 Term Loan. In July 2019, the Company repaid approximately $193.8 million of the 2018 Term Loan using a portion of the proceeds received from the sale of Clean Earth.March 31, 2020.

Senior Notes

On April 18, 2018, we consummated the issuance and sale of $400 million aggregate principal amount of our 8.000% due 2026 (the "Notes" or "Senior Notes") offered pursuant to a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act, and to non-U.S. persons under Regulation S under the Securities Act. The Notes were issued pursuant to an indenture, dated as of April 18, 2018 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee. The Notes ~~will~~ bear interest at the rate of 8.000% per annum and will mature on May 1, 2026. Interest on the Notes is payable in cash on May 1st and November 1st of each year. The Notes are general senior unsecured obligations of the Company and are not guaranteed by our subsidiaries.

The following table reflects required and actual financial ratios as of ~~September 30, 2019~~March 31, 2020 included as part of the affirmative covenants in our 2018 Credit Facility.



Description of Required Covenant Ratio	Covenant Ratio Requirement	Actual Ratio

Consolidated Fixed Charge Coverage Ratio	Greater than or equal to 1.50:1.0	~~1:62:~~2:67:1.0
Consolidated Senior Secured Leverage Ratio⁽¹⁾	Less than or equal to 3.50:1.0	~~0.55:~~0.00:1.0
Consolidated Total Leverage Ratio⁽¹⁾	Less than or equal to 5.00:1.0	~~2.29:~~1.45:1.0

⁽¹⁾In the calculation of our Consolidated Senior Secured Leverage Ratio and Consolidated Total Leverage Ratio, the amount of total outstanding debt is reduced by cash and cash equivalents either held by the Company on deposit at the Administrative Agent or in an account subject to a Qualifying Control Agreement. At September 30, 2019, the ratio calculations exclude $90.3 million of cash as a result of Qualifying Control Agreements not in place as of the end of the quarter. Subsequent to quarter end, the Qualifying Control Agreements were established for this cash and the resulting calculations would have been reduced for this cash balance.

Interest Expense

The components of interest expense and periodic interest charges on outstanding debt are as follows (in thousands):


	Nine months ended September 30,						Three months ended March 31,
	2019			2018			2020			2019
Interest on credit facilities	$	20,225		$	23,293		$	249		$	8,774
Interest on Senior Notes	24,000			14,489			8,000			8,000
Unused fee on Revolving Credit Facility	1,393			1,282			400			387
Amortization of original issue discount	397			576			—			152
Unrealized (gain) loss on interest rate derivative ⁽¹⁾	3,486			(4,649		)
Unrealized loss on interest rate derivative ⁽¹⁾							—			1,099
Other interest expense	211			266			89			51
Interest income	(1,288		)	(30		)	(141		)	(9		)
Interest expense	$	48,424		$	35,227		$	8,597		$	18,454

Average daily balance outstanding - credit facilities	$	547,332		$	709,929		$	37,363		$	709,929
Effective interest rate -credit facilities	6.3		%	3.9		%	2.7		%	5.6		%

⁽¹⁾On September 16, 2014, we purchased an interest rate swap (the "Swap") with a notional amount of $220 million effective April 1, 2016 through June 6, 2021. The agreement ~~requires~~required 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,~~In connection with the repayment of the 2018 Term Loan in November 2019, the ~~current portion of~~Company settled the Swap ~~was in a liability position and had a fair value of $2.6 million, and the non-current portion of the Swap was in a liability position~~ with a ~~fair value~~payment of ~~$2.3 million. The~~$4.9 million, the fair value of the Swap ~~reflects~~as of the ~~present value~~date of ~~future payments and receipts under the agreement and is reflected as a component of interest expense and non-current assets and current liabilities at September 30, 2019.~~termination.

In the above table, we provide the effective interest rate on our credit facilities, including the effect of the Swap, and excluding the interest on our Senior Notes, which is at a fixed 8.000%.

Reconciliation of Non-GAAP Financial Measures

GAAP or U.S. GAAP refer to generally accepted accounting principles in the United States. From time to time we may publicly disclose certain "non-GAAP" financial measures in the course of our investor presentations, earnings releases, earnings conference calls or other venues. A non-GAAP financial measure is a numerical measure of historical or future performance, financial position or cash flow that excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in our financial statements, and vice versa for measures that include amounts, or are subject to adjustments that effectively include amounts, that are excluded from the most directly comparable measure as calculated and presented.

Non-GAAP financial measures are provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating results. These measures are not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.

The tables below reconcile the most directly comparable GAAP financial measures to Earnings before Interest, Income Taxes, Depreciation and Amortization ("EBITDA"), Adjusted EBITDA, and Cash Flow Available for Distribution and Reinvestment ("CAD").

Reconciliation of Net income (Loss) to EBITDA and Adjusted EBITDA

EBITDA – EBITDA is calculated as net income (loss) before interest expense, income tax expense (benefit), depreciation expense and amortization expense. Amortization expenses consist of amortization of intangibles and debt charges, including debt issuance costs, discounts, etc.

Adjusted EBITDA – Adjusted EBITDA is calculated utilizing the same calculation as described above in arriving at EBITDA further adjusted by: (i) noncontrolling stockholder compensation, which generally consists of non-cash stock option expense; (ii) successful acquisition costs, which consist of transaction costs (legal, accounting, due diligence, etc.) incurred in connection with the successful acquisition of a business expensed during the period in compliance with ASC 805; (iii) management fees, which reflect fees due quarterly to our Manager in connection with our MSA, as well as Integration Services Fees paid by newly acquired companies; (iv) impairment charges, which reflect write downs to goodwill or other intangible assets; and ~~(vi)~~(v) foreign currency transaction gains or losses incurred in connection with the conversion of intercompany debt from a foreign functional currency to U.S. dollar.

We believe that EBITDA and Adjusted EBITDA provide useful information to investors and reflect important financial measures as they exclude the effects of items which reflect the impact of long-term investment decisions, rather than the performance of near term operations. When compared to income (loss) from continuing operations these financial measures are limited in that they do not reflect the periodic costs of certain capital assets used in generating revenues of our businesses or the non-cash charges associated with impairments. This presentation also allows investors to view the performance of our businesses in a manner similar to the methods used by us and the management of our businesses, provides additional insight into our operating results and provides a measure for evaluating targeted businesses for acquisition.

We believe that these measurements are also useful in measuring our ability to service debt and other payment obligations. EBITDA and Adjusted EBITDA are not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.

The following tables reconcile EBITDA and Adjusted EBITDA to net income (loss), which we consider to be the most comparable GAAP financial measure (in thousands):

~~Adjusted EBITDA~~

~~Nine months ended September 30, 2019~~


Adjusted EBITDA																													Adjusted EBITDA
Three months ended March 31, 2020																													Three months ended March 31, 2020
	Corporate			5.11			Ergobaby			Liberty			Velocity Outdoor			ACI			Arnold			Foam		Sterno		Consolidated			Corporate			5.11			Ergobaby			Liberty			Velocity Outdoor			ACI		Arnold			Foam			Sterno			Consolidated
Net income (loss) ⁽¹⁾	$	292,440		$	(1,071	)	$	4,251		$	1,404		$	(35,242	)	$	11,035		$	(132	)	$	3,383	$	8,819	$	284,887
Net income (loss)																													$	(1,635	)	$	2,133		$	903		$	1,608		$	(3,302	)	$	2,821	$	616		$	1,369		$	367		$	4,880
Adjusted for:
Provision (benefit) for income taxes	—			742			2,248			1,058			(2,198		)	2,934			1,679			1,492		2,420		10,375			—			(1,864		)	(7		)	538			(453		)	1,427		(454		)	1,032			3			222
Interest expense, net	48,247			2			—			—			173			(1		)	(1		)	—		4		48,424			8,536			26			—			—			35			—		—			—			—			8,597
Intercompany interest	(61,609		)	13,500			2,640			3,278			8,484			5,029			4,777			6,675		17,226		—			(17,732		)	3,820			650			982			2,517			1,447		1,467			1,838			5,011			—
Loss on debt extinguishment	5,038			—			—			—			—			—			—			—		—		5,038
Depreciation and amortization	1,333			16,037			6,566			1,248			9,937			1,830			4,883			9,258		16,793		67,885			101			5,253			2,061			426			3,305			684		1,655			3,110			5,736			22,331
EBITDA	285,449			29,210			15,705			6,988			(18,846		)	20,827			11,206			20,808		45,262		416,609			(10,730		)	9,368			3,607			3,554			2,102			6,379		3,284			7,349			11,117			36,030
Gain on sale of business	(330,203		)	—			—			—			—			—			—			—		—		(330,203		)
Other (income) expense	91			(92		)	(11		)	10			968			(22		)	(3		)	256		16		1,213			1			370			—			(4		)	(18		)	5		—			(790		)	(225		)	(661		)
Noncontrolling shareholder compensation	—			1,742			620			(15		)	86			167			32			767		866		4,265			—			515			207			7			650			124		16			258			278			2,055
Impairment expense	—			—			—			—			33,381			—			—			—		—		33,381
Loss on sale of investment	10,193			—			—			—			—			—			—			—		—		10,193
Integration services fee	—			—			—			—			—			—			—			281		—		281
Other	—			—			—			266			—			58			—			—		—		324			(1		)	—			—			—			—			—		—			—			—			(1		)
Management fees	24,789			750			375			375			375			375			375			563		375		28,352			7,432			250			125			125			125			125		125			188			125			8,620
Adjusted EBITDA	$	(9,681	)	$	31,610		$	16,689		$	7,624		$	15,964		$	21,405		$	11,610		$	22,675	$	46,519	$	164,415		$	(3,298	)	$	10,503		$	3,939		$	3,682		$	2,859		$	6,633	$	3,425		$	7,005		$	11,295		$	46,043

⁽¹⁾~~Net income (loss) does not include income from discontinued operations for the nine months ended September 30, 2019.~~

~~Adjusted EBITDA~~

~~Nine months ended September 30, 2018~~


Adjusted EBITDA																											Adjusted EBITDA
Three months ended March 31, 2019																											Three months ended March 31, 2019
	Corporate			5.11			Ergobaby		Liberty		Velocity Outdoor			ACI			Arnold			Foam		Sterno		Consolidated			Corporate			5.11				Ergobaby		Liberty		Velocity Outdoor			ACI			Arnold			Foam		Sterno		Consolidated
Net income (loss)⁽¹⁾	$	(19,267	)	$	(9,612	)	$	4,550	$	1,282	$	(934	)	$	10,646		$	(330	)	$	530	$	2,882	$	(10,253	)	$	104,899		$	(1,870	)		$	1,523	$	153	$	(1,865	)	$	3,704		$	137		$	604	$	1,446	$	108,731
Adjusted for:
Provision (benefit) for income taxes	—			(586		)	1,697		420		(736		)	2,790			2,446			689		837		7,557			—			(445		)		626		118		(693		)	1,061			(263		)	539		481		1,424
Interest expense, net	34,979			13			1		—		235			(2		)	—			—		1		35,227			18,411			(4		)		—		—		48			(1		)	—			—		—		18,454
Intercompany interest	(57,311		)	12,904			3,661		3,139		6,401			5,605			4,660			5,898		15,043		—			(20,874		)	4,565				979		1,080		2,779			1,737			1,584			2,277		5,873		—
Loss on debt extinguishment	744			—			—		—		—			—			—			—		—		744
Depreciation and amortization	1,352			16,201			6,397		1,190		6,252			2,497			4,789			7,912		21,758		68,348			493			5,258			��	2,119		428		3,312			707			1,644			3,067		5,485		22,513
EBITDA	(39,503		)	18,920			16,306		6,031		11,218			21,536			11,565			15,029		40,521		101,623			102,929			7,504				5,247		1,779		3,581			7,208			3,102			6,487		13,285		151,122
Gain on sale of businesses	(1,165		)	—			—		—		—			—			—					—		(1,165		)	(121,659		)	—				—		—		—			—			—					—		(121,659		)
Gain (loss) on sale of fixed assets	—			(259		)	—		59		—			—			48			72		—		(80		)
Other (income) expense																											362			(8		)		—		43		11			(58		)	(2		)	16		70		434
Noncontrolling shareholder compensation	—			1,903			733		37		1,074			18			117			594		1,496		5,972			—			559				225		9		270			6			(15		)	254		420		1,728
Acquisition related expenses	5			—			—		—		1,362			—			—			1,552		632		3,551
Loss on sale of investment																											5,300			—				—		—		—			—			—			—		—		5,300
Integration services fee	—			—			—		—		750			—			—			1,406		—		2,156			—			—				—		—		—			—			—			281		—		281
Loss on foreign currency transactions	1,364			—			—		—		—			—			—			—		—		1,364
Other																											—			—				—		266		—			58			—			—		—		324
Management fees	28,734			750			375		375		375			375			375			470		375		32,204			9,769			250				125		125		125			125			125			188		125		10,957
Adjusted EBITDA ⁽²⁾	$	(10,565	)	$	21,314		$	17,414	$	6,502	$	14,779		$	21,929		$	12,105		$	19,123	$	43,024	$	145,625		$	(3,299	)	$	8,305			$	5,597	$	2,222	$	3,987		$	7,339		$	3,210		$	7,226	$	13,900	$	48,487

⁽¹⁾Net income (loss) does not include loss from discontinued operations for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019.

⁽²⁾ As a result of the ~~sales~~sale of ~~Manitoba Harvest in February 2019 and~~ Clean Earth in June 2019, Adjusted EBITDA for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 does not include Adjusted EBITDA from ~~Manitoba Harvest of $4.9 million and~~ Clean Earth of ~~$32.9~~$8.3 million.

Reconciliation of Cash Flow Available for Distribution and Reinvestment

The table below details cash receipts and payments that are not reflected on our income statement in order to provide an additional measure of management's estimate of cash flow available for distribution ("CAD"). CAD is a non-GAAP measure that we believe provides additional, useful information to our shareholders in order to enable them to evaluate our ability to make anticipated quarterly distributions. CAD is not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.

The following table reconciles CAD to net income (loss) and cash flows provided by operating activities, which we consider to be the most directly comparable financial measure calculated and presented in accordance with GAAP.


	Nine Months Ended						Three Months Ended
(in thousands)	September 30, 2019			September 30, 2018			March 31, 2020			March 31, 2019
Net income	$	301,788		$	4,678		$	4,880		$	110,158
Adjustment to reconcile net income to cash provided by operating activities:
Adjustment to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization	78,413			87,878			21,806			28,638
Impairment expense	33,381			—
Gain on sale of businesses	(330,203		)	(1,165		)	—			(121,659		)
Amortization of debt issuance costs and original issue discount	3,022			3,403			525			1,079
Unrealized (gain) loss on interest rate hedge	3,486			(4,649		)
Unrealized loss on interest rate hedge							—			1,099
Noncontrolling shareholder charges	6,204			7,694			2,055			2,205
Provision for loss on receivables	2,786			459			883			696
Deferred taxes	(14,538		)	(6,622		)	(2,692		)	(2,323		)
Other	5,961			46			(515		)	334
Changes in operating assets and liabilities	(58,716		)	(32,950		)	7,044			(29,163		)
Net cash provided by operating activities	31,584			58,772
Net cash provided by (used in) operating activities							33,986			(8,936		)
Plus:
Unused fee on revolving credit facility	1,393			1,282			400			387
Integration services fee ⁽¹⁾	281			2,156			—			281
Successful acquisition costs	596			4,995			—			366
Realized loss from foreign currency ⁽²⁾	363			1,364			—			363
Loss on sale of Tilray Common Stock	10,193			—			—			5,300
Changes in operating assets and liabilities	58,716			32,950			—			29,163
Other	—			885
Less:
Payment of interest rate swap	675			1,444			—			94
Changes in operating assets and liabilities							7,044			—
Maintenance capital expenditures: ⁽³⁾
Compass Group Diversified Holdings LLC	—			—			—			—
5.11 Tactical	1,547			2,629
5.11							174			212
Advanced Circuits	1,126			1,169			17			188
Arnold	2,874			3,160			1,060			1,112
Clean Earth	3,495			5,998			—			1,350
Ergobaby	583			646			98			71
Foam Fabricators	1,387			1,455			526			498
Liberty	720			1,039			186			126
Manitoba Harvest	—			342
Sterno	932			2,320			326			452
Velocity Outdoor	2,096			3,063			873			988
Other	2,301			—			883			403
Preferred share distribution	11,344			8,398			5,542			3,781
Estimated cash flow available for distribution and reinvestment	$	74,046		$	70,741		$	17,657		$	17,649

Distribution paid in April 2020/2019							$	(21,564	)	$	(21,564	)

Distribution paid in April 2019/2018 $ (21,564 ) $ (21,564 )
Distribution paid in July 2019/2018 (21,564 ) (21,564 )
Distribution paid in October 2019/2018 (21,564 ) (21,564 )
$ (64,692 ) $ (64,692 )

⁽¹⁾Represents fees paid by newly acquired companies to the Manager for integration services performed during the first year of ownership, payable quarterly.

⁽²⁾ Reflects the foreign currency transaction gain or loss resulting from the Canadian dollar intercompany loans issued to Manitoba Harvest.

⁽³⁾

Represents maintenance capital expenditures that were funded from operating cash flow, net of proceeds from the sale of property, plant and equipment, and excludes growth capital expenditures of approximately ~~$10.7~~$3.3 million for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~$19.2~~$2.5 million for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019.

Seasonality

Related Party Transactions

Management Services Agreement

We entered into ~~a Management Services Agreement ("MSA")~~the MSA with CGM effective May 16, 2006. The MSA provides for, among other things, CGM to perform services for the Company in exchange for a management fee paid quarterly and equal to 0.5% of the Company's adjusted net assets, as defined in the MSA. Concurrent with the June 2019 sale of Clean Earth (refer to Note CB - Discontinued Operations), CGM agreed to waive the management fee on cash balances held at the Company, commencing with the quarter ended June 30, 2019 and continuing until the quarter during which the Company next ~~borrows~~borrowed under the 2018 Revolving Credit Facility. In March 2020, as a proactive measure to provide the Company with additional cash liquidity in light of the COVID-19 pandemic, the Company elected to draw down $200 million on our 2018 Revolving Credit Facility. The Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of March 31, 2020. In addition, as a result of an expected decline in earnings and cash flows in the second quarter of 2020, CGM has agreed to waive 50% of the management fee calculated at June 30, 2020 that will be paid in July 2020.

Integrations Services Agreements

Foam Fabricators, which was acquired in 2018, entered into an Integration Services Agreement ("ISA") with CGM. The ISA provides for CGM to provide services for new platform acquisitions to, amongst other things, assist the management at the acquired entities in establishing a corporate governance program, implement compliance and reporting requirements of the Sarbanes-Oxley Act of 2002, as amended, and align the acquired entity's policies and procedures with our other subsidiaries. Each ISA is for the twelve-month period subsequent to the acquisition. Foam Fabricators paid CGM $2.3 million over the term of the ISA, with $2.0 million paid in 2018 and $0.3 million in 2019.

5.11 - Related Party Vendor Purchases

5.11 purchases inventory from a vendor who is a related party to 5.11 through one of the executive officers of 5.11 via the executive's 40% ownership interest in the vendor. During the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, 5.11 purchased approximately ~~$3.2~~$0.5 million and $1.3 million, respectively, in inventory from the vendor.

Profit Allocation Payments

October 2019 represented the five-year anniversary of the Company's acquisition of Sterno, which qualified as a Holding Event under the Company's LLC Agreement (the "Sterno Holding Event"). During the first quarter of 2020, the Company declared and paid a distribution of $9.1 million to the Allocation Member related to the Sterno Holding Event. The ten-year anniversary of Liberty occurred in March 2020 which represented a Holding Event. The holders of the Allocation Interests elected to defer the distribution of $3.3 million until after the end of 2020.

The sales of Manitoba Harvest in February 2019 and Clean Earth in June 2019 each qualified as a Sale Event under the Company's LLC Agreement. During the second quarter of 2019, the Company declared and paid a distribution to the Allocation Member ~~in connection with~~of $8.0 million related to the ~~Sale Event~~sale of Manitoba Harvest ~~of $7.7 million which was paid in the second quarter of 2019.~~and working capital settlements from prior Sale Events. The profit allocation distribution was calculated based on the portion of the gain on sale related to the Closing Date Consideration, less the loss on sale of shares that were received as part of the Closing Consideration. ~~An additional profit allocation distribution related to the Sale Event of Manitoba Harvest will be declared subsequent to receipt of the Deferred Consideration in August 2019.~~ During the third quarter of 2019, the Company declared and paid a distribution to the Allocation Member ~~in connection with the Sale Event of Clean Earth~~ of $43.3 million ~~which was paid in~~related to the ~~third quarter~~sale of ~~2019.~~Clean Earth. During the fourth quarter of 2019, the Company declared and paid a distribution to the Allocation Member ~~in connection with~~of $9.1 million related to the Deferred Consideration ~~received related to~~from the Manitoba Harvest sale and the working capital settlement received from the sale of ~~$8.7 million.~~Clean Earth.

Off-Balance Sheet Arrangements

We have no special purpose entities or off-balance sheet arrangements.

Contractual Obligations

Long-term contractual obligations, except for our long-term debt obligations and operating lease liabilities, are generally not recognized in our consolidated balance sheet. Non-cancelable purchase obligations are obligations we incur during the normal course of business, based on projected needs.

The table below summarizes the payment schedule of our contractual obligations at ~~September 30, 2019:~~March 31, 2020:


(in thousands)	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long-term debt obligations ⁽¹⁾	$	993,024	$	25,076	$	104,647	$	103,837	$	759,464	$	795,582	$	32,000	$	64,000	$	267,582	$	432,000
Operating lease obligations ⁽²⁾	132,816		4,775		47,251		33,914		46,876		134,924		19,270		46,112		28,180		41,362
Purchase obligations ⁽³⁾	351,708		126,063		108,594		81,609		35,442		800,271		223,367		288,690		288,214		—
Total ⁽⁴⁾	$	1,477,548	$	155,914	$	260,492	$	219,360	$	841,782	$	1,730,777	$	274,637	$	398,802	$	583,976	$	473,362


⁽¹⁾	Reflects amounts due under our 2018 Credit Facility, as well as our Senior Notes, together with interest on our debt obligations.


⁽²⁾	Reflects various operating leases for office space, manufacturing facilities and equipment from third parties with various lease terms.

⁽³⁾

Reflects non-cancelable commitments as of ~~September 30, 2019,~~March 31, 2020, including: (i) shareholder distributions of ~~$116.0~~$110.4 million; (ii) estimated management fees of ~~$30.4~~$30.9 million per year over the next five years; and (iii) other obligations including amounts due under employment agreements. Distributions to our shareholders are approved by our board of directors each quarter. The amount ultimately approved as future quarterly distributions may differ from the amount included in this schedule.


⁽⁴⁾	The contractual obligation table does not include approximately $1.1 million in liabilities associated with unrecognized tax benefits as of ~~September 30, 2019~~March 31, 2020 as the timing of the recognition of this liability is not certain. The amount of the liability is not expected to significantly change in the next twelve months.

Critical Accounting Estimates

The preparation of our financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates under different assumptions and judgments and uncertainties, and potentially could result in materially different results under different conditions. These critical accounting estimates are reviewed periodically by our independent auditors and the audit committee of our board of directors.

Except as set forth below, our critical accounting estimates have not changed materially from those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, for the year ended December 31, ~~2018,~~2019, as filed with the Securities and Exchange Commission ("SEC") on February ~~27, 2019.~~26, 2020.

Goodwill and Indefinite-lived Intangible Asset Impairment Testing

Goodwill

Goodwill represents the excess amount of the purchase price over the fair value of the assets acquired. Our goodwill and indefinite lived intangible assets are tested for impairment on an annual basis as of March 31^st, and if current events or circumstances require, on an interim basis. Goodwill is allocated to various reporting units, which are generally an operating segment or one level below the operating segment. Each of our businesses represents a reporting unit.

We use a qualitative approach to test goodwill for impairment by first assessing qualitative factors to determine whether it is ~~more-likely than-not~~more-likely-than-not that the fair value of a reporting unit is ~~less~~greater than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment testing. The qualitative factors we consider include, in part, the general macroeconomic environment, industry and market specific conditions for each reporting unit, financial performance including actual versus planned results and results of relevant prior periods, operating costs and cost impacts, as well as issues or events specific to the reporting unit. If qualitative factors are not sufficient to determine that the fair value of a reporting unit is more likely than not to exceed its carrying ~~value.~~value, we will perform a

quantitative test of the reporting unit whereby we estimate the fair value of the reporting unit using an income approach or market approach, or a weighting of the two methods. Under the income approach, we estimate the fair value of our reporting unit based on the present value of future cash flows. Cash flow projections are based on ~~Management's~~management's estimate of revenue growth rates and operating margins and take into consideration industry and market conditions

as well as company specific economic factors. The discount rate used is based on the weighted average cost of capital adjusted for the relevant risk associated with the business and the uncertainty associated with the reporting unit's ability to execute on the projected cash flows. Under the market approach, we estimate fair value based on market multiples of revenue and earnings derived from comparable public companies with operating characteristics that are similar to the reporting unit. When market comparables are not meaningful or available, we estimate the fair value of the reporting unit using only the income approach.

2020 Annual Impairment Testing - For our annual impairment testing at March 31, 2020, we performed a qualitative assessment of our reporting units. As part of our current year analysis, we have considered how we expect the COVID-19 pandemic to impact our future operating results and short and long-term financial condition. In addition to the typical qualitative factors we consider as part of the assessment, we went through a process with each of our reporting units whereby we considered various scenarios for the remainder of the year, probability weighted for what we consider the most likely outcome given existing facts and circumstances. This process included consideration of the reporting unit's industry and customers, including customer liquidity, operational capacity given local government restrictions imposed to prevent spread of the COVID-19 virus, supply chain constraints that may exist as a result of the virus and ability of the subsidiary to reduce cash outflows. The results of the qualitative analysis indicated that it was more-likely-than-not that the fair value of our 5.11, ACI, Arnold, Liberty and Sterno reporting units exceeded their carrying value. Based on our analysis, we determined that our Ergobaby, Foam Fabricators and Velocity operating segments required quantitative testing because we could not conclude that the fair value of these reporting units significantly exceeded the carrying value based on qualitative factors alone.

We performed the quantitative tests of Ergobaby, Foam Fabricators and Velocity using an income approach to determine the fair value of the reporting units. We were unable to use a market approach due to the current market conditions as a result of the COVID-19 pandemic resulting in significant volatility and lack of available market comparables. In developing the prospective financial information used in the income approach, we considered recent market conditions, taking into consideration the uncertainty associated with the COVID-19 pandemic and its economic fallout. The prospective financial information considers reporting unit specific facts and circumstances and is our best estimate of operational results and cash flows for each reporting unit as of the date of our impairment testing. For Ergobaby, the discount rate used in the income approach was 15.9% and the results of the quantitative impairment testing indicated that the fair value of the Ergobaby reporting unit exceeded the carrying value by 14.0%. For Foam Fabricators, the discount rate used in the income approach was 13.3%, and the results of the quantitative impairment testing indicated that the fair value of the Foam Fabricators reporting unit exceeded the carrying value by 3.8%. The impairment test for Velocity used a discount rate of 12.8% in the income approach, and the results of the quantitative impairment testing indicated that the fair value of the Velocity reporting unit exceeded the carrying value by 16.4%. The prospective financial information that is used to determine the fair values of the reporting units requires us to make assumptions regarding future operational results including revenue growth rates and gross margins. If we do not achieve the forecasted revenue growth rates and gross margins, the results of the quantitative testing could change, potentially leading to additional testing and impairment at the reporting units that were tested quantitatively.

2019 Interim Impairment Testing - As a result of operating results below forecasts in the current period as well as a re-forecast of the Velocity business in which planned earnings and revenue fell below the forecasts of prior periods, we determined that a triggering event had occurred at Velocity Outdoor in the third quarter of 2019. We performed goodwill impairment testing at Velocity as of September 30, 2019. For the quantitative impairment test at Velocity, we utilized an income approach. Cash flow projections are based on management's estimate of revenue growth rates and operating margins, and take into consideration industry and market conditions as well as company specific economic factors. We used a weighted average cost of capital of 12.2% in the income approach. The discount rate used was based on the weighted average cost of capital adjusted for the relevant risk associated with business specific characteristics and Velocity's ability to execute on the projected cash flows. Based on the results of the impairment test, the fair value of Velocity did not exceed the carrying value, indicating that the goodwill at Velocity is impaired. The difference between the carrying value and fair value of the Velocity business was ~~$33.4~~$32.9 million, which the Company ~~has~~ recorded as impairment expense ~~as of September 30, 2019. We expect to finalize the impairment test~~ during the ~~fourth quarter of~~year ended December 31, 2019.

2019 Annual Impairment Testing - For our annual impairment testing at March 31, 2019, we determined that our Liberty operating segment required quantitative testing because we could not conclude that the fair value of Liberty significantly exceeded its carrying value based on qualitative factors alone. We concluded the goodwill impairment testing during the quarter ended June 30, 2019. The results of the quantitative impairment testing of the Liberty reporting unit indicated

that the fair value of the Liberty reporting unit exceeded the carrying value by 135%. All of our other reporting units were tested qualitatively as of March 31, 2019, and the results of the qualitative analysis indicated that the fair value exceeded their carrying value.

For the reporting units that were tested qualitatively for the 2019 annual impairment testing, the results of the qualitative analysis indicated that it ~~is more likely than not~~was more-likely-than-not that the fair value exceeded their carrying value.

~~2018 Annual Impairment Testing~~ - Our Arnold operating segment previously had three separate reporting units. As a result of changes implemented by Arnold management during 2016 and 2017, we reassessed the reporting units at Arnold as of the annual impairment testing date in 2018. The separate Arnold reporting units were determined to only comprise one reporting unit at the Arnold operating segment level as of March 31, 2018. As part of the exercise of combining the separate Arnold reporting units into one reporting unit, we performed "before" and "after" goodwill impairment testing, whereby we performed the annual impairment testing for each of the existing reporting units of Arnold and then subsequent to the completion of the annual impairment testing of the separate reporting units, we performed a quantitative impairment test of the Arnold operating segment. Two of the Arnold reporting units, PMAG and PTM, were tested qualitatively as part of the "before" test, while a quantitative impairment test was performed on the Flexmag reporting unit because we could not determine that it was more-likely than-not that the fair value of a reporting unit exceeded its carrying value. We then performed a quantitative impairment test of the Arnold operating segment, which combined the three reporting units. The results of the quantitative impairment testing of the Arnold reporting unit indicated that the fair value of the Arnold reporting unit exceeded the carrying value by 254%. All of our other reporting units were tested qualitatively as of March 31, 2018, and the results of the qualitative analysis indicated that the fair value exceeded their carrying 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 $60.0 million. The results of the qualitative analysis of our reporting unit's indefinite-lived intangible assets, which we completed as of March 31, 2020 and 2019, indicated that the fair value of the indefinite lived intangible assets exceeded their carrying value. The Ergobaby and Liberty reporting units have indefinite lived trade names that were tested in conjunction with the goodwill impairment tests at March 31, 2020 and March 31, 2019, respectively. The results of the quantitative impairment testing indicated that the trade names were not impaired.

Revenue from Contracts with Customers

~~In May 2014,~~The Company recognizes revenue in accordance with the ~~Financial Accounting Standards Board ("FASB") issued a comprehensive new~~provisions of Revenue from Contracts with Customers, or ASC 606. The revenue ~~recognition standard. The new~~ standard outlines a single comprehensive model for entities to use in accounting for revenue arising

from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In addition, the standard requires disclosure of the amount, timing and uncertainty of cash flows arising from contracts with customers. The new standard, and all related amendments, was effective for us beginning January 1, 2018 and was adopted using the modified retrospective method for all contracts not completed as of the date of adoption.

The adoption of the new revenue guidance represented a change in accounting principle that will more closely align revenue recognition with the transfer of control of our goods and services and will provide financial statement readers with enhanced disclosures. In accordance with the new revenue guidance, revenueRevenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods or services, and excludes any sales incentives or taxes collected from customers which are subsequently remitted to government authorities.

The Company’s contracts with customers often include promises to transfer multiple products to a customer. Determining whether the promises are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Once the performance obligations are identified, the Company determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. The Company then allocates the transaction price to each performance obligation in the contract based on a relative stand-alone selling price method. The corresponding revenues are recognized as the related performance obligations are satisfied as discussed above. Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately and therefore observable.

~~Upon adoption of the new revenue guidance, the~~The Company’s policy around estimating variable consideration related to sales incentives (early pay discounts, rights of return, rebates, chargebacks, and other discounts) included in certain customer contracts ~~remained~~remains consistent with previous guidance. These incentives are recorded as a reduction in the transaction price. Under the ~~new~~revenue standard guidance, variable consideration is estimated and included in total consideration at contract inception based on either the expected value method or the most likely outcome method. The method was applied consistently among each type of variable consideration and the Company applies the expected value method to estimate variable consideration. These estimates are based on historical experience, anticipated performance and the Company’s best judgment at the time and as a result, reflect applicable constraints. The Company includes in the transaction price an amount of variable consideration estimated in accordance with the new guidance only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Business Combinations

The acquisitions of our businesses are accounted for under the acquisition method of accounting. Accounting for business combinations requires the use of estimates and assumptions in determining the fair value of assets acquired and liabilities assumed in order to allocate the purchase price. The estimates of fair value of the assets acquired and liabilities assumed are based upon assumptions believed to be reasonable using established valuation methods, taking into consideration information supplied by the management of the acquired entities and other relevant information. The determination of fair values requires significant judgment both by our management team and, when appropriate, valuations by independent third-party appraisers. We amortize intangible assets, such as trademarks and customer relationships, as well as property, plant and equipment, over their economic useful lives, unless those lives are indefinite.

We consider factors such as historical information, our plans for the asset and similar assets held by our previously acquired portfolio companies. The impact could result in either higher or lower amortization and/or depreciation expense.

Recent Accounting Pronouncements

Refer to Note A - "Presentation and Principles of Consolidation" of the condensed consolidated financial statements for a discussion of recent accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our market risk since December 31, ~~2018.~~2019. For a further discussion of our exposure to market risk, refer to the section entitled "Quantitative and Qualitative Disclosures about Market Risk" that was disclosed in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, as filed with the SEC on February ~~27, 2019.~~

26, 2020.

ITEM 4. CONTROLS AND PROCEDURES

As required by Securities Exchange Act of 1934, as amended (the "Exchange Act") Rule 13a-15(b), Holdings’ Regular Trustees and the Company’s management, including the Chief Executive Officer and Chief Financial Officer of the Company, conducted an evaluation of the effectiveness of Holdings’ and the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of ~~September 30, 2019.~~March 31, 2020. Based on that evaluation, the Holdings’ Regular Trustees and the Chief Executive Officer and Chief Financial Officer of the Company concluded that Holdings’ and the Company’s disclosure controls and procedures were effective as of ~~September 30, 2019.~~March 31, 2020.

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

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, ~~2018,~~2019, as filed with the SEC on February ~~27, 2019.~~26, 2020.

ITEM 1A. RISK FACTORS

~~There~~The risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 should be considered together with information included in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and should not be considered the only risks to which we are exposed. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, including our results of operations, liquidity and financial condition. We are providing the following information regarding changes that have occurred to the previously disclosed risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Except for such additional information, we believe there have been no material changes ~~in those~~from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on February 26, 2020.

Our financial condition and results of operations are expected to be adversely affected by the COVID-19 pandemic.

In late 2019, there was an outbreak of a new strain of coronavirus, COVID-19. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, lowered equity valuations, disrupted global supply chains and workforce participation due to “shelter-in-place” restrictions by various governments worldwide, decreased consumer confidence generally and created significant volatility and disruption of financial markets.

The Company’s operations and business have been and are expected to continue to be materially and adversely affected by the COVID-19 pandemic and related weak, or weakening of, economic or other negative conditions. In particular, the Company's businesses dependent on food service and brick and mortar retail operations have been and will continue to be especially susceptible to declining sales due to COVID-19 mitigation efforts. COVID-19 related facility shutdowns mandated by national or regional public health policies could also prevent our sites from operating in full capacity and adversely affect our financial position. The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected timeframe, will depend on future developments. The significance of the impact on the Company’s operations is not yet certain and depends on numerous evolving factors that the Company may not be able to accurately predict or effectively respond to, including, without limitation: the duration and scope of the outbreak; actions taken by governments, businesses, and individuals in response to the outbreak; the effect on economic activity and actions taken in response; the effect on customers and their demand for the Company’s products and services; and the Company’s ability to manufacture, sell, and service its products, including without limitation as a result of supply chain challenges, facility closures, social distancing, restrictions on travel, and shelter-in-place orders. These and other ~~uncertainties associated with~~factors relating to or arising from the ~~Company~~outbreak could have a material adverse effect on the Company’s business, results of operations, and ~~Holdings discussed~~cash flows. The degree to which COVID-19 and related actions ultimately impact our business, financial position, results of operations and cash flows will depend on factors which are highly uncertain, difficult to predict and beyond our control including the duration, spread and severity of the outbreak, the actions taken to contain COVID-19 and mitigate its public health effects, the impact on the U.S. and global economies and demand for our products, and how quickly and to what extent normal economic and operating conditions resume. Certain of the Company's subsidiaries rely on customers and suppliers outside of the United States. Consequently, they will be negatively affected based on the impact of COVID-19 in regions outside of the United States and actions taken by local governments to try and limit the spread of COVID-19. As such, even if COVID 19 recedes in the ~~section entitled~~United States or if localities re-open within the United States, the performance and the operating results of the company and its subsidiaries may still be negatively impacted based on the spread of the virus in international locations. Even after COVID-19 has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus's global economic impact and any recession that has occurred or may occur in the future.

The Company has been aggressively managing capital expenditures across its businesses during the COVID-19 pandemic, which may result in slower growth or declining sales in future periods. Certain of our businesses have also experienced reduced orders, which will have a negative affect on sales in future periods even if sales in the periods in which orders decline are unaffected. We expect that the impact of COVID-19 to negatively affect our free cash flow. To the extent the impact to our business is materially worse than we currently expect, our board will need to consider how it impacts our future business decisions and strategies. Further, if we are unable to maintain sufficient access to capital, we may be unable to pursue attractive acquisitions or investment opportunities, which would have a negative impact on our growth and financial condition.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. Further, a second wave of COVID-19 later in 2020 or beyond would cause many of the impacts described herein to return or be exacerbated. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described in the "Risk Factors" ~~that was disclosed in Part I, Item 1A~~section of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018, as filed with the SEC on February 27,~~ 2019.



ITEM 6. EXHIBITS

Exhibit Number		Description

31.1*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Registrant

31.2*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Registrant

32.1*⁺		Certification of Chief Executive Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*⁺		Certification of Chief Financial Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.1		Agreement and Plan of Merger, dated as of March 6, 2020, among Marucci Sports, LLC, Wheelhouse Holdings, Inc., Wheelhouse Holdings Merger Sub LLC and Wheelhouse 2020 LLC (incorporated by reference to Exhibit 99.1 of the Form 8-K filed on March 9, 2020 (File No. 001-34927))

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.

+	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.



	COMPASS DIVERSIFIED HOLDINGS

	By:		/s/ Ryan J. Faulkingham
			Ryan J. Faulkingham
			Regular Trustee

Date: ~~October~~April 30, ~~2019~~2020

SIGNATURES

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



	COMPASS GROUP DIVERSIFIED HOLDINGS LLC

	By:		/s/ Ryan J. Faulkingham
			Ryan J. Faulkingham
			Chief Financial Officer (Principal Financial and Accounting Officer)

Date: ~~October~~April 30, ~~2019~~2020

EXHIBIT INDEX



Exhibit Number		Description

31.1*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Registrant

31.2*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Registrant

32.1*⁺		Certification of Chief Executive Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*⁺		Certification of Chief Financial Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.1		Agreement and Plan of Merger, dated as of March 6, 2020, among Marucci Sports, LLC, Wheelhouse Holdings, Inc., Wheelhouse Holdings Merger Sub LLC and Wheelhouse 2020 LLC (incorporated by reference to Exhibit 99.1 of the Form 8-K filed on March 9, 2020 (File No. 001-34927))

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.

+	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.

6959



	Three months ended September 30, 2018
	5.11		Ergo		Liberty		Velocity		ACI		Arnold		Foam		Sterno		Total
United States	$	62,085	$	8,190	$	17,263	$	29,862	$	23,424	$	18,202	$	28,378	$	110,274	$	297,678
Canada	1,465		697		609		2,062		—		264		—		2,934		8,031
Europe	6,871		7,962		—		1,231		—		9,390		—		248		25,702
Asia Pacific	3,919		7,176		—		375		—		1,311		—		110		12,891
Other international	9,002		235		—		759		—		724		4,959		302		15,981
	$	83,342	$	24,260	$	17,872	$	34,289	$	23,424	$	29,891	$	33,337	$	113,868	$	360,283



	Level 3
Balance at January 1, 2018	$	(178	)
Contingent consideration - Rimports ⁽¹⁾	(4,800		)
Contingent consideration - Ravin ⁽²⁾	(4,734		)
Decrease in the fair value of put option of noncontrolling shareholder - 5.11	5
Adjustment to Ravin contingent consideration	360
Reversal of contingent consideration - Rimports	4,800
Balance at January 1, 2019	$	(4,547	)
Decrease in the fair value of put option of noncontrolling shareholder - Liberty	42
Balance at September 30, 2019	$	(4,505	)



Distribution paid in April 2019/2018	$	(21,564	)	$	(21,564	)
Distribution paid in July 2019/2018	(21,564		)	(21,564		)
Distribution paid in October 2019/2018	(21,564		)	(21,564		)
	$	(64,692	)	$	(64,692	)

(State or other jurisdiction of
incorporation or organization)

(Commission
file number)

(I.R.S. employer
identification number)