NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2021
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 ten businesses, or reportable operating segments, at March 31, 2021. The segments are as follows: 5.11 Acquisition Corp. ("5.11"), Boa Holdings Inc. ("BOA"), The Ergo Baby Carrier, Inc. ("Ergobaby"), Liberty Safe and Security Products, Inc. ("Liberty Safe" or "Liberty"), Marucci Sports, LLC ("Marucci Sports" or "Marucci"), 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. (formerly "Foam Fabricators") ("Altor Solutions" or "Altor"), and The Sterno Group, LLC ("Sterno"). Refer to Note E - "Operating Segment Data" for further discussion of the operating segments. Compass Group Management LLC, a Delaware limited liability company ("CGM" or the "Manager"), manages the day to day operations of the Company and oversees the management and operations of our businesses pursuant to a Management Services Agreement ("MSA").
Basis of Presentation
The condensed consolidated financial statements for the three month periods ended March 31, 2021 and March 31, 2020 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, 2020.
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.
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 quarters produce the highest net sales during our fiscal year.
Recently Adopted 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 was effective for fiscal years and interim periods beginning after December 15, 2020 and early adoption is permitted. The adoption of this guidance on January 1, 2021 did not have a material impact on our consolidated financial statements.
Note B — Acquisition
Acquisition of Marucci Sports, LLC
On April 20, 2020, pursuant to an Agreement and Plan of Merger entered into on March 6, 2020, the Company, through a wholly-owned subsidiary, Wheelhouse Holdings Inc., a Delaware corporation (“Buyer”) and Wheelhouse Holdings Merger Sub LLC, a Delaware limited liability company and a wholly owned Subsidiary of Buyer (“Merger Sub”), completed a merger (the “Transaction”) with Marucci Sports, LLC, a Delaware limited liability company (“Marucci”). Upon the completion of the Transaction, Marucci became a wholly owned subsidiary of Buyer and an indirect subsidiary of the Company. 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 Company made loans to, and purchased a 92.2% equity interest in, Marucci. The purchase price, including proceeds from noncontrolling shareholders and net of transaction costs, was $198.9 million. Marucci management and certain existing shareholders invested in the Transaction along with the Company, representing 7.8% initial noncontrolling interest on both a primary and fully diluted basis. The fair value of the noncontrolling interest was determined based on the enterprise value of the acquired entity multiplied by the ratio of the number of shares acquired by the minority holders to total shares. The transaction was accounted for as a business combination. CGM acted as an advisor to the Company in the acquisition and will continue to provide integration services during the first year of the Company's ownership of Marucci. CGM will receive integration service fees of $2.0 million payable quarterly over a twelve month period as services are rendered which payments began in the quarter ended September 30, 2020. The Company incurred $2.0 million of transaction costs in conjunction with the Marucci acquisition, which was included in selling, general and administrative expense in the consolidated statements of operations during the second quarter of 2020.
The results of operations of Marucci have been included in the consolidated results of operations since the date of acquisition. Marucci's results of operations are reported as a separate operating segment as a branded consumer business. The table below provides the recording of assets acquired and liabilities assumed as of the date of acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Final Purchase Price Allocation
|
|
Assets
|
|
|
|
Cash
|
|
2,730
|
|
|
Accounts Receivable (1)
|
|
11,471
|
|
|
Inventory (2)
|
|
14,481
|
|
|
Property, plant and equipment (3)
|
|
10,307
|
|
|
Intangible assets
|
|
100,211
|
|
|
Goodwill
|
|
68,170
|
|
|
Other current and noncurrent assets
|
|
2,208
|
|
|
Total Assets
|
|
209,578
|
|
|
|
|
|
|
Liabilities and noncontrolling interest
|
|
|
|
Current liabilities
|
|
6,501
|
|
|
Other liabilities
|
|
43,058
|
|
|
Deferred tax liabilities
|
|
1,161
|
|
|
Noncontrolling interest
|
|
11,127
|
|
|
Total liabilities and noncontrolling interest
|
|
61,847
|
|
|
|
|
|
|
Net assets acquired
|
|
147,731
|
|
|
Noncontrolling interest
|
|
11,127
|
|
|
Intercompany loans
|
|
42,100
|
|
|
|
|
$
|
200,958
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition consideration
|
|
|
|
Purchase price
|
|
$
|
200,000
|
|
|
Cash acquired
|
|
2,730
|
|
|
Net working capital adjustment
|
|
728
|
|
|
Other adjustments
|
|
(2,500)
|
|
|
Total purchase consideration
|
|
$
|
200,958
|
|
|
Less: Transaction costs
|
|
2,042
|
|
|
Net purchase price
|
|
$
|
198,916
|
|
|
|
|
|
(1) Includes $12.7 million in gross contractual accounts receivable, of which $1.2 million is not expected to be collected. The fair value of accounts receivable approximates book value acquired.
(2) Includes $4.3 million in inventory basis step-up, which will be charged to cost of goods sold. $3.0 million was amortized to cost of goods sold in the second quarter of 2020, and $1.3 million was charged to cost of goods sold in the third quarter of 2020.
(3) Includes $2.5 million of property, plant and equipment basis step-up. The fair value of property, plant and equipment will be depreciated over the remaining useful lives of the assets.
The allocation of the purchase price presented above is based on management's estimate of the fair values using valuation techniques including the income, cost and market approach. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates and estimated discount rates. Current and noncurrent assets and current and other liabilities are valued at historical carrying values. Property, plant and equipment is valued through a purchase price appraisal and will be depreciated on a straight-line basis over the respective remaining useful lives of the assets. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. The goodwill of $68.2 million reflects the strategic fit of Marucci in the Company's branded consumer business and is expected to be deductible for income tax purposes.
The intangible assets recorded related to the Marucci acquisition are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets
|
|
Amount
|
|
Estimated Useful Life
|
|
Tradename
|
|
$
|
84,891
|
|
|
15 years
|
|
Customer relationships
|
|
11,120
|
|
|
15 years
|
|
Technology
|
|
4,200
|
|
|
15 years
|
|
|
|
$
|
100,211
|
|
|
|
The tradename was valued at $84.9 million using a multi-period excess earnings methodology. The customer relationships intangible asset was valued at $11.1 million using the distributor method, a variation of the multi-period excess earnings methodology, in which an asset is valuable to the extent it enables its owners to earn a return in excess of the required returns on the other assets utilized in the business. The technology was valued at $4.2 million using a relief from royalty method.
Acquisition of Boa Technology, Inc.
On October 16, 2020, the Company, through its newly formed acquisition subsidiaries, BOA Holdings Inc., a Delaware corporation (“BOA Holdings”) and BOA Parent Inc., a Delaware corporation (“BOA Buyer”) and a wholly-owned subsidiary of BOA Holdings, acquired Boa Technology Inc. ("BOA"), and its subsidiaries pursuant to an Agreement and Plan of Merger (the “Agreement and Plan of Merger”) by and among BOA Buyer, Reel Holding Corp., a Delaware corporation (“Reel”) and the sole stockholder of Boa Technology, Inc., BOA Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of BOA Buyer (“Merger Sub”) and Shareholder Representative Services LLC (in its capacity as the representative of the stockholders of Reel) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Reel Holding Corp., a Delaware corporation (“BOA”) and the sole stockholder of Boa Technology, Inc., BOA Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary
of BOA Buyer (“Merger Sub”), and Shareholder Representative Services LLC (in its capacity as the representative of the stockholders of BOA). Pursuant to the Merger Agreement, Merger Sub was merged with and into BOA (the “Merger”) such that the separate existence of Merger Sub ceased, and BOA survived the Merger as a wholly-owned subsidiary of BOA Buyer. BOA, creators of the award-winning BOA® Fit System featured in performance footwear, action sports, outdoor and medical products worldwide, was founded in 2001 and is headquartered in Denver, Colorado.
The Company made loans to, and purchased an 82% equity interest in, BOA. The purchase price, including proceeds from noncontrolling shareholders and net of transaction costs, was $454.3 million. BOA management and certain existing shareholders invested in the transaction along with the Company, representing 18% initial noncontrolling interest on both a primary and fully diluted basis. The fair value of the noncontrolling interest was determined based on the enterprise value of the acquired entity multiplied by the ratio of the number of shares acquired by the minority holders to total shares. The transaction was accounted for as a business combination. CGM acted as an advisor to the Company in the acquisition and will continue to provide integration services during the first year of the Company's ownership of BOA. CGM will receive integration service fees of $4.4 million payable quarterly over a twelve month period as services are rendered which payments began in the quarter ended December 31, 2020. The Company incurred $2.5 million of transaction costs in conjunction with the BOA acquisition, which was included in selling, general and administrative expense in the consolidated statements of operations during the fourth quarter of 2020. The Company funded the acquisition with cash on hand and a $300 million draw on its 2018 Revolving Credit Facility.
The results of operations of BOA have been included in the consolidated results of operations since the date of acquisition. BOA's results of operations are reported as a separate operating segment as a branded consumer business. The table below provides the recording of assets acquired and liabilities assumed as of the date of acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Final Purchase Price Allocation
|
|
Assets:
|
|
|
|
Cash
|
|
$
|
7,677
|
|
|
Accounts receivable (1)
|
|
2,065
|
|
|
Inventory (2)
|
|
6,178
|
|
|
Property, plant and equipment (3)
|
|
15,431
|
|
|
Intangible assets
|
|
234,000
|
|
|
Goodwill
|
|
254,153
|
|
|
Other current and noncurrent assets
|
|
12,554
|
|
|
Total assets
|
|
$
|
532,058
|
|
|
|
|
|
|
Liabilities and noncontrolling interest:
|
|
|
|
Current liabilities
|
|
$
|
14,008
|
|
|
Other liabilities
|
|
130,587
|
|
|
Deferred tax liabilities
|
|
49,969
|
|
|
Noncontrolling interest
|
|
61,534
|
|
|
Total liabilities and noncontrolling interest
|
|
$
|
256,098
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
275,960
|
|
|
Noncontrolling interest
|
|
61,534
|
|
|
Intercompany loans to business
|
|
119,349
|
|
|
|
|
$
|
456,843
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition consideration
|
|
|
|
Purchase price
|
|
$
|
454,000
|
|
|
Cash acquired
|
|
7,677
|
|
|
Net working capital adjustment
|
|
(1,970)
|
|
|
Other adjustments
|
|
(2,864)
|
|
|
Total purchase consideration
|
|
$
|
456,843
|
|
|
Less: Transaction costs
|
|
2,517
|
|
|
Net purchase price
|
|
$
|
454,326
|
|
|
|
|
|
(1) Includes $2.1 million in gross contractual accounts receivable, of which $0.06 million is not expected to be collected. The fair value of accounts receivable approximates book value acquired.
(2) Includes $1.5 million in inventory basis step-up, which was charged to cost of goods sold in the fourth quarter of 2020.
(3) Includes $6.5 million of property, plant and equipment basis step-up. The fair value of property, plant and equipment will be depreciated over the remaining useful lives of the assets.
The allocation of the purchase price presented above is based on management's estimate of the fair values using valuation techniques including the income, cost and market approach. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates and estimated discount rates. Current and noncurrent assets and current and other liabilities are valued at historical carrying values. Property, plant and equipment is valued through a purchase price appraisal and will be depreciated on a straight-line basis over the respective remaining useful lives of the assets. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. The goodwill of $254.2 million reflects the strategic fit of BOA in the Company's branded consumer business and is not expected to be deductible for income tax purposes.
The intangible assets recorded related to the BOA acquisition are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets
|
|
Fair Value
|
|
Estimated Useful Lives
|
|
|
|
|
|
|
|
Technology
|
|
$
|
70,200
|
|
|
10 - 12 years
|
|
Tradename
|
|
84,300
|
|
|
20 years
|
|
Customer relationships
|
|
73,000
|
|
|
15 years
|
|
In-process Research & Development (1)
|
|
6,500
|
|
|
|
|
|
|
$
|
234,000
|
|
|
|
(1) In-process research and development is considered indefinite lived until the underlying technology becomes viable, at which point the intangible asset will be amortized over the expected useful life.
The technology was considered the primary intangible asset in the acquisition and was valued at $70.2 million using a multi-period excess earnings methodology with an assumed obsolescence factor. The tradename was valued at $84.3 million using a relief-from-royalty method. The customer relationships, which represent BOA's relationship with brand partners, were valued at $73.0 million using the distributor method, a variation of the multi-period excess earnings methodology, in which an asset is valuable to the extent it enables its owners to earn a return in excess of the required returns on the other assets utilized in the business.
Unaudited pro forma information
The following unaudited pro forma data for the three months ended March 31, 2020 gives effect to the acquisitions of Marucci and BOA, as described above, as if the acquisitions had been completed as of January 1, 2020. The pro forma data gives effect to historical operating results with adjustments to interest expense, amortization and depreciation expense, management fees and related tax effects. The information is provided for illustrative purposes
only and is not necessarily indicative of the operating results that would have occurred if the transaction had been consummated on the date indicated, nor is it necessarily indicative of future operating results of the consolidated companies, and should not be construed as representing results for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
(in thousands, except per share data)
|
|
March 31, 2020
|
|
Net sales
|
|
382,193
|
|
|
Gross profit
|
|
147,437
|
|
|
Operating income
|
|
16,702
|
|
|
Net income from continuing operations
|
|
2,510
|
|
|
Net income from continuing operations attributable to Holdings
|
|
874
|
|
|
Basic and fully diluted net loss per share attributable to Holdings
|
|
(0.30)
|
|
Other acquisitions
Arnold
On March 1, 2021, Arnold acquired Ramco Electric Motors, Inc. ("Ramco"), a manufacturer of stators, rotors and full electric motors, for a purchase price of approximately $34.4 million. The acquisition and related transaction costs were funded through an additional equity investment in Arnold by the Company of $35.5 million. Ramco was founded in 1987 and is based in Greenville, Ohio. Ramco supplies their custom electric motor solutions for general industrial, aerospace and defense, and oil and gas end-markets. Ramco’s complementary product portfolio will allow Arnold to be able to offer more comprehensive, turnkey solutions to their customers. The excess purchase price over net assets acquired has been recorded as goodwill of $22.4 million on a preliminary basis at March 31, 2021.
Altor Solutions
On July 1, 2020, Altor Solutions acquired substantially all of the assets of Polyfoam Corp. ("Polyfoam"), a Massachusetts-based manufacturer of protective and temperature-sensitive packaging solutions for the medical, pharmaceutical, grocery and food industries, among others. Founded in 1974, Polyfoam operates two manufacturing facilities producing highly engineered foam and injection-molded plastic solutions across a variety of end-markets. The acquisition complements Altor Solutions' current operating footprint and provides access to a new customer base and product offerings, including Polyfoam's significant end-market exposure to cold chain (including seafood boxes, insulated shipping containers and grocery delivery totes). The purchase price was approximately $12.8 million and includes a potential earnout of $1.4 million if Polyfoam achieves certain financial metrics.
In September 2020, Altor Solutions invested $3.6 million in Rational Packaging, LLC, a designer and manufacturer of recyclable, paperboard-based structural packaging components. The investment will be accounted for as an equity method investment.
Note C — Revenue
The Company recognizes revenue in accordance with the provisions of Revenue from Contracts with Customers, or ASC 606. Revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services, and excludes any sales incentives or taxes collected from customers which are subsequently remitted to government authorities.
Disaggregated Revenue - The Company disaggregates revenue by strategic business unit and by geography for each strategic business unit which are categories that depict how the nature, amount and uncertainty of 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 months ended March 31, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
|
|
5.11
|
|
BOA
|
|
Ergo
|
|
Liberty
|
|
Marucci
|
|
Velocity
|
|
ACI
|
|
Altor
|
|
Arnold
|
|
Sterno
|
|
Total
|
|
United States
|
$
|
80,783
|
|
|
$
|
14,081
|
|
|
$
|
8,799
|
|
|
$
|
30,603
|
|
|
$
|
36,096
|
|
|
$
|
58,269
|
|
|
$
|
21,562
|
|
|
$
|
32,744
|
|
|
$
|
21,361
|
|
|
$
|
74,025
|
|
|
$
|
378,323
|
|
|
Canada
|
2,554
|
|
|
224
|
|
|
754
|
|
|
848
|
|
|
341
|
|
|
3,223
|
|
|
—
|
|
|
—
|
|
|
205
|
|
|
3,000
|
|
|
11,149
|
|
|
Europe
|
7,155
|
|
|
13,350
|
|
|
7,345
|
|
|
—
|
|
|
29
|
|
|
2,521
|
|
|
—
|
|
|
—
|
|
|
8,858
|
|
|
249
|
|
|
39,507
|
|
|
Asia Pacific
|
3,813
|
|
|
8,728
|
|
|
5,261
|
|
|
—
|
|
|
182
|
|
|
276
|
|
|
—
|
|
|
—
|
|
|
1,293
|
|
|
15
|
|
|
19,568
|
|
|
Other international
|
5,572
|
|
|
69
|
|
|
169
|
|
|
27
|
|
|
—
|
|
|
1,343
|
|
|
—
|
|
|
5,076
|
|
|
768
|
|
|
25
|
|
|
13,049
|
|
|
|
$
|
99,877
|
|
|
$
|
36,452
|
|
|
$
|
22,328
|
|
|
$
|
31,478
|
|
|
$
|
36,648
|
|
|
$
|
65,632
|
|
|
$
|
21,562
|
|
|
$
|
37,820
|
|
|
$
|
32,485
|
|
|
$
|
77,314
|
|
|
$
|
461,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
|
|
5.11
|
|
Ergo
|
|
Liberty
|
|
Velocity
|
|
ACI
|
|
Altor
|
|
Arnold
|
|
Sterno
|
|
Total
|
|
United States
|
$
|
72,427
|
|
|
$
|
6,258
|
|
|
$
|
24,657
|
|
|
$
|
25,879
|
|
|
$
|
21,696
|
|
|
$
|
23,587
|
|
|
$
|
18,563
|
|
|
$
|
80,016
|
|
|
$
|
273,083
|
|
|
Canada
|
1,474
|
|
|
700
|
|
|
303
|
|
|
1,920
|
|
|
—
|
|
|
—
|
|
|
156
|
|
|
2,927
|
|
|
7,480
|
|
|
Europe
|
6,307
|
|
|
5,787
|
|
|
—
|
|
|
1,698
|
|
|
—
|
|
|
—
|
|
|
8,328
|
|
|
58
|
|
|
22,178
|
|
|
Asia Pacific
|
3,511
|
|
|
5,903
|
|
|
—
|
|
|
246
|
|
|
—
|
|
|
—
|
|
|
1,395
|
|
|
28
|
|
|
11,083
|
|
|
Other international
|
12,062
|
|
|
1,001
|
|
|
—
|
|
|
647
|
|
|
—
|
|
|
4,796
|
|
|
1,116
|
|
|
3
|
|
|
19,625
|
|
|
|
$
|
95,781
|
|
|
$
|
19,649
|
|
|
$
|
24,960
|
|
|
$
|
30,390
|
|
|
$
|
21,696
|
|
|
$
|
28,383
|
|
|
$
|
29,558
|
|
|
$
|
83,032
|
|
|
$
|
333,449
|
|
Note D — Operating Segment Data
At March 31, 2021, the Company had ten 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 is a leading provider of purpose-built technical apparel and gear for law enforcement, firefighters, EMS, and military special operations as well as outdoor and adventure enthusiasts. 5.11 is a brand known for innovation and authenticity, and works directly with end users to create purpose-built apparel and gear designed to enhance the safety, accuracy, speed and performance of tactical professionals and enthusiasts worldwide. Headquartered in Irvine, California, 5.11 operates sales offices and distribution centers globally, and 5.11 products are widely distributed in uniform stores, military exchanges, outdoor retail stores, its own retail stores and on 511tactical.com.
•BOA, creator of the revolutionary, award-winning, patented BOA Fit System, partners with market-leading brands to make the best gear even better. Delivering fit solutions purpose-built for performance, the BOA Fit System is featured in footwear across snow sports, cycling, hiking/trekking, golf, running, court sports, workwear as well as headwear and medical bracing. The system consists of three integral parts: a micro-adjustable dial, high-tensile lightweight laces, and low friction lace guides creating a superior alternative to laces, buckles, Velcro, and other traditional closure mechanisms. Each unique BOA configuration is engineered for fast, effortless, precision fit, and is backed by The BOA Lifetime Guarantee. BOA is headquartered in Denver, Colorado and has offices in Austria, Greater China, South Korea, and Japan.
•Ergobaby 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.
•Marucci Sports is a leading designer, manufacturer, and marketer of premium wood and metal baseball bats, fielding gloves, batting gloves, bags, protective gear, sunglasses, on and off-field apparel, and other baseball and softball equipment used by professional and amateur athletes. Marucci also develops and licenses franchises for sports training facilities. Marucci is headquartered in Baton Rouge, Louisiana.
•Velocity Outdoor 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.
•Altor Solutions is a designer and manufacturer of custom molded protective foam solutions and original equipment manufacturer components made from expanded polystyrene and expanded polypropylene. Altor provides products to a variety of end markets, including appliances and electronics, pharmaceuticals, health and wellness, automotive, building and other products. In July 2020, Altor acquired the assets of Polyfoam, a Massachusetts-based manufacturer of protective and temperature-sensitive packaging solutions for the medical, pharmaceutical, grocery and food industries, among others. Altor is headquartered in Scottsdale, Arizona and operates 14 molding and fabricating facilities across North America subsequent to the acquisition of Polyfoam.
•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, energy, reprographics and advertising specialties. Arnold produces high performance permanent magnets (PMAG), precision foil products (Precision Thin Metals or "PTM"), turnkey electric motors ("Ramco") 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.
•Sterno is a manufacturer and marketer of portable food warming systems, creative indoor and outdoor lighting, and home fragrance solutions for the foodservice industry and consumer markets. Sterno offers a broad range of wick and gel chafing systems, butane stoves and accessories, liquid and traditional wax candles, catering equipment and lamps through Sterno Products, flameless candles and outdoor lighting products through Sterno Home, and scented wax cubes and warmer products used for home decor and fragrance systems through Rimports. 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 March 31,
|
|
|
|
(in thousands)
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.11
|
$
|
99,877
|
|
|
$
|
95,781
|
|
|
|
|
|
|
BOA
|
36,452
|
|
|
—
|
|
|
|
|
|
|
Ergobaby
|
22,328
|
|
|
19,649
|
|
|
|
|
|
|
Liberty
|
31,478
|
|
|
24,960
|
|
|
|
|
|
|
Marucci
|
36,648
|
|
|
—
|
|
|
|
|
|
|
Velocity Outdoor
|
65,632
|
|
|
30,390
|
|
|
|
|
|
|
ACI
|
21,562
|
|
|
21,696
|
|
|
|
|
|
|
Altor
|
37,820
|
|
|
28,383
|
|
|
|
|
|
|
Arnold
|
32,485
|
|
|
29,558
|
|
|
|
|
|
|
Sterno
|
77,314
|
|
|
83,032
|
|
|
|
|
|
|
Total segment revenue
|
461,596
|
|
|
333,449
|
|
|
|
|
|
|
Corporate and other
|
—
|
|
|
—
|
|
|
|
|
|
|
Total consolidated revenues
|
$
|
461,596
|
|
|
$
|
333,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss) (1)
|
Three months ended March 31,
|
|
|
|
(in thousands)
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.11
|
$
|
5,836
|
|
|
$
|
4,586
|
|
|
|
|
|
|
BOA
|
7,254
|
|
|
—
|
|
|
|
|
|
|
Ergobaby
|
1,964
|
|
|
1,554
|
|
|
|
|
|
|
Liberty
|
5,630
|
|
|
3,145
|
|
|
|
|
|
|
Marucci
|
10,507
|
|
|
—
|
|
|
|
|
|
|
Velocity Outdoor
|
11,034
|
|
|
(1,164)
|
|
|
|
|
|
|
ACI
|
5,495
|
|
|
5,738
|
|
|
|
|
|
|
Altor
|
4,684
|
|
|
3,512
|
|
|
|
|
|
|
Arnold
|
2,996
|
|
|
1,653
|
|
|
|
|
|
|
Sterno
|
4,284
|
|
|
5,269
|
|
|
|
|
|
|
Total
|
59,684
|
|
|
24,293
|
|
|
|
|
|
|
Reconciliation of segment profit (loss) to consolidated net income before income taxes:
|
|
|
|
|
|
|
|
|
Interest expense, net
|
(13,805)
|
|
|
(8,597)
|
|
|
|
|
|
|
Other income (expense), net
|
(2,227)
|
|
|
661
|
|
|
|
|
|
|
Corporate and other (2)
|
(14,136)
|
|
|
(11,255)
|
|
|
|
|
|
|
Total consolidated income before income taxes
|
$
|
29,516
|
|
|
$
|
5,102
|
|
|
|
|
|
(1)Segment profit (loss) represents operating income (loss).
(2)Primarily relates to management fees expensed and payable to CGM, and corporate overhead expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization Expense
|
Three months ended March 31,
|
|
|
|
(in thousands)
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.11
|
$
|
5,358
|
|
|
$
|
5,152
|
|
|
|
|
|
|
BOA
|
4,890
|
|
|
—
|
|
|
|
|
|
|
Ergobaby
|
2,217
|
|
|
2,053
|
|
|
|
|
|
|
Liberty
|
441
|
|
|
406
|
|
|
|
|
|
|
Marucci
|
2,139
|
|
|
—
|
|
|
|
|
|
|
Velocity Outdoor
|
3,073
|
|
|
3,247
|
|
|
|
|
|
|
ACI
|
517
|
|
|
646
|
|
|
|
|
|
|
Altor
|
2,563
|
|
|
3,047
|
|
|
|
|
|
|
Arnold
|
1,721
|
|
|
1,631
|
|
|
|
|
|
|
Sterno
|
5,185
|
|
|
5,624
|
|
|
|
|
|
|
Total
|
28,104
|
|
|
21,806
|
|
|
|
|
|
|
Reconciliation of segment to consolidated total:
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and bond premium
|
603
|
|
|
525
|
|
|
|
|
|
|
Consolidated total
|
$
|
28,707
|
|
|
$
|
22,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
Identifiable Assets
|
|
|
March 31,
|
|
December 31,
|
|
March 31,
|
|
December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
2021 (1)
|
|
2020 (1)
|
|
5.11
|
$
|
47,151
|
|
|
$
|
50,082
|
|
|
$
|
351,378
|
|
|
$
|
354,033
|
|
|
BOA
|
1,921
|
|
|
1,492
|
|
|
265,494
|
|
|
269,438
|
|
|
Ergobaby
|
10,116
|
|
|
5,034
|
|
|
92,095
|
|
|
91,293
|
|
|
Liberty
|
16,901
|
|
|
18,877
|
|
|
38,162
|
|
|
35,858
|
|
|
Marucci
|
19,973
|
|
|
10,172
|
|
|
126,506
|
|
|
129,116
|
|
|
Velocity Outdoor
|
40,711
|
|
|
40,126
|
|
|
197,648
|
|
|
191,180
|
|
|
ACI
|
8,022
|
|
|
7,252
|
|
|
25,283
|
|
|
28,932
|
|
|
Altor
|
32,015
|
|
|
34,088
|
|
|
165,365
|
|
|
164,800
|
|
|
Arnold
|
22,861
|
|
|
13,237
|
|
|
83,693
|
|
|
75,958
|
|
|
Sterno
|
61,112
|
|
|
70,467
|
|
|
252,214
|
|
|
251,307
|
|
|
Allowance for doubtful accounts
|
(18,312)
|
|
|
(18,320)
|
|
|
—
|
|
|
—
|
|
|
Total
|
242,471
|
|
|
232,507
|
|
|
1,597,838
|
|
|
1,591,915
|
|
|
Reconciliation of segment to consolidated total:
|
|
|
|
|
|
|
|
|
Corporate and other identifiable assets (2)
|
—
|
|
|
—
|
|
|
664,510
|
|
|
8,093
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
$
|
242,471
|
|
|
$
|
232,507
|
|
|
$
|
2,262,348
|
|
|
$
|
1,600,008
|
|
(2)Corporate identifiable assets at March 31, 2021 includes $647.7 million related to the settlement of the Company's 8.000% 2026 Senior Notes on April 1, 2021 (refer to Note P - Subsequent Event).
Note E — Property, Plant and Equipment and Inventory
Property, plant and equipment
Property, plant and equipment is comprised of the following at March 31, 2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Machinery and equipment
|
$
|
225,294
|
|
|
$
|
217,639
|
|
|
Furniture, fixtures and other
|
49,609
|
|
|
48,251
|
|
|
Leasehold improvements
|
52,826
|
|
|
51,663
|
|
|
Buildings and land
|
14,164
|
|
|
10,817
|
|
|
Construction in process
|
15,675
|
|
|
15,713
|
|
|
|
357,568
|
|
|
344,083
|
|
|
Less: accumulated depreciation
|
(180,261)
|
|
|
(171,414)
|
|
|
Total
|
$
|
177,307
|
|
|
$
|
172,669
|
|
Depreciation expense was $9.5 million and $8.3 million for the three months ended March 31, 2021 and March 31, 2020, respectively.
Inventory
Inventory is comprised of the following at March 31, 2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Raw materials
|
$
|
86,873
|
|
|
$
|
81,357
|
|
|
Work-in-process
|
16,191
|
|
|
14,979
|
|
|
Finished goods
|
306,716
|
|
|
289,035
|
|
|
Less: obsolescence reserve
|
(25,480)
|
|
|
(21,998)
|
|
|
Total
|
$
|
384,300
|
|
|
$
|
363,373
|
|
Note F — 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
2021 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. We determined that the Arnold 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. For the reporting units that were tested only on a qualitative basis for the 2021 annual impairment testing, the results of the qualitative analysis indicated that it is more likely than not that the fair value exceeded the carrying value of these reporting units.
The quantitative test of Arnold was performed using an income approach to determine the fair value of the reporting unit. The discount rate used in the income approach was 13.0% and the results of the quantitative impairment testing indicated that the fair value of the Arnold reporting unit exceeded the carrying value by 272%.
2020 Annual Impairment Testing
The Company used a qualitative approach to test goodwill for impairment in the prior year. We determined that the Ergobaby, Altor Solutions and Velocity reporting units 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 reporting units that were tested only on a qualitative basis for the 2020 annual impairment testing, the results of the 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, Altor Solutions and Velocity were performed using an income approach to determine the fair value of the reporting units. 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 Altor Solutions, 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 Altor Solutions reporting unit exceeded the carrying value by 3.8%. For Velocity, the discount rate used in the income approach was 12.8%, and the results of the quantitative impairment testing indicated that the fair value of the Velocity reporting unit exceeded the carrying value by 16.4%.
A summary of the net carrying value of goodwill at March 31, 2021 and December 31, 2020, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
|
Year ended
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill - gross carrying amount
|
$
|
844,090
|
|
|
$
|
823,748
|
|
|
Accumulated impairment losses
|
(57,745)
|
|
|
(57,745)
|
|
|
Goodwill - net carrying amount
|
$
|
786,345
|
|
|
$
|
766,003
|
|
The following is a reconciliation of the change in the carrying value of goodwill for the three months ended March 31, 2021 by operating segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2021
|
|
Acquisitions
|
|
|
|
|
|
|
|
Balance at March 31, 2021
|
|
5.11
|
|
$
|
92,966
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
$
|
92,966
|
|
|
BOA
|
|
254,153
|
|
|
—
|
|
|
|
|
|
|
|
|
254,153
|
|
|
Ergobaby
|
|
63,531
|
|
|
(2,083)
|
|
|
|
|
|
|
|
|
61,448
|
|
|
Liberty
|
|
32,828
|
|
|
—
|
|
|
|
|
|
|
|
|
32,828
|
|
|
Marucci
|
|
68,170
|
|
|
—
|
|
|
|
|
|
|
|
|
68,170
|
|
|
Velocity Outdoor
|
|
30,079
|
|
|
—
|
|
|
|
|
|
|
|
|
30,079
|
|
|
ACI
|
|
58,019
|
|
|
—
|
|
|
|
|
|
|
|
|
58,019
|
|
|
Altor
|
|
75,369
|
|
|
—
|
|
|
|
|
|
|
|
|
75,369
|
|
|
Arnold
|
|
26,903
|
|
|
22,425
|
|
|
|
|
|
|
|
|
49,328
|
|
|
Sterno
|
|
55,336
|
|
|
—
|
|
|
|
|
|
|
|
|
55,336
|
|
|
Corporate (1)
|
|
8,649
|
|
|
—
|
|
|
|
|
|
|
|
|
8,649
|
|
|
Total
|
|
$
|
766,003
|
|
|
$
|
20,342
|
|
|
|
|
|
|
|
|
$
|
786,345
|
|
(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 2021 and 2020. 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 reporting unit has an indefinite lived trade name that was tested in conjunction with the goodwill impairment test at March 31, 2020. The results of the quantitative impairment testing indicated that the trade name was not impaired.
Other intangible assets are comprised of the following at March 31, 2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Customer relationships
|
$
|
548,262
|
|
|
$
|
(200,501)
|
|
|
$
|
347,761
|
|
|
$
|
548,262
|
|
|
$
|
(191,142)
|
|
|
$
|
357,120
|
|
|
Technology and patents
|
155,732
|
|
|
(38,514)
|
|
|
117,218
|
|
|
155,392
|
|
|
(35,552)
|
|
|
119,840
|
|
|
Trade names, subject to amortization
|
358,818
|
|
|
(71,306)
|
|
|
287,512
|
|
|
358,818
|
|
|
(65,318)
|
|
|
293,500
|
|
|
Licensing and non-compete agreements
|
7,642
|
|
|
(7,522)
|
|
|
120
|
|
|
7,642
|
|
|
(7,422)
|
|
|
220
|
|
|
Distributor relations and other
|
2,476
|
|
|
(914)
|
|
|
1,562
|
|
|
726
|
|
|
(726)
|
|
|
—
|
|
|
Total
|
1,072,930
|
|
|
(318,757)
|
|
|
754,173
|
|
|
1,070,840
|
|
|
(300,160)
|
|
|
770,680
|
|
|
Trade names, not subject to amortization
|
59,985
|
|
|
—
|
|
|
59,985
|
|
|
59,985
|
|
|
—
|
|
|
59,985
|
|
|
In-process research and development (1)
|
6,500
|
|
|
—
|
|
|
6,500
|
|
|
6,500
|
|
|
—
|
|
|
6,500
|
|
|
Total intangibles, net
|
$
|
1,139,415
|
|
|
$
|
(318,757)
|
|
|
$
|
820,658
|
|
|
$
|
1,137,325
|
|
|
$
|
(300,160)
|
|
|
$
|
837,165
|
|
(1) In-process research and development is considered indefinite lived until the underlying technology becomes viable, at which point the intangible asset will be amortized over the expected useful life.
Amortization expense related to intangible assets was $18.6 million and $13.5 million for the three months ended March 31, 2021 and March 31, 2020, respectively.
Estimated charges to amortization expense of intangible assets for the remainder of 2021 and the next four years, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,316
|
|
|
$
|
72,133
|
|
|
$
|
71,691
|
|
|
$
|
69,931
|
|
|
$
|
64,645
|
|
|
|
|
Note G — Warranties
The Company’s Ergobaby, Liberty, Marucci, BOA 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 three months ended March 31, 2021 and the year ended December 31, 2020 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty liability
|
Three months ended March 31, 2021
|
|
Year ended December 31, 2020
|
|
|
|
|
|
|
Beginning balance
|
$
|
2,390
|
|
|
$
|
1,583
|
|
|
Provision for warranties issued during the period
|
1,455
|
|
|
3,772
|
|
|
Fulfillment of warranty obligations
|
(1,321)
|
|
|
(3,614)
|
|
|
Other (1)
|
—
|
|
|
649
|
|
|
Ending balance
|
$
|
2,524
|
|
|
$
|
2,390
|
|
(1) Represents the warranty liabilities recorded in relation to the Marucci and BOA acquisitions in 2020.
Note H — Debt
2021 Credit Facility
On March 23, 2021, we entered into a Second Amended and Restated Credit Agreement (the "2021 Credit Facility") to amend and restate the 2018 Credit Facility (as previously restated and amended) among the Company, the lenders from time to time party thereto (the “Lenders”), and Bank of America, N.A., as Administrative Agent. The 2021 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 2021 Credit Facility provides for revolving loans, swing line loans and letters of credit (the “2021 Revolving Credit Facility”) up to a maximum aggregate amount of $600 million and also permits the Company, prior to the applicable maturity date, to increase the revolving loan commitment and/or obtain term loans in an aggregate amount of up to $250 million, subject to certain restrictions and conditions. All amounts outstanding under the 2021 Revolving Credit Facility will become due on March 23, 2026, which is the maturity date of loans advanced under the 2021 Credit Facility.
The Company may borrow, prepay and reborrow principal under the 2021 Revolving Credit Facility from time to time during its term. Advances under the 2021 Revolving Credit Facility can be either Eurodollar rate loans or base rate loans. Eurodollar rate revolving loans bear interest on the outstanding principal amount thereof for each interest period at a rate per annum based on the London Interbank Offered Rate or a Successor Rate, as defined, (the “Eurodollar Rate”) for such interest period plus a margin ranging from 1.50% to 2.50%, based on the ratio of consolidated net indebtedness to adjusted consolidated earnings before interest expense, tax expense, and depreciation and amortization expenses for such period (the “Consolidated Total Leverage Ratio”). Base rate revolving loans bear interest on the outstanding principal amount thereof at a rate per annum equal to the highest of (i) Federal Funds rate plus 0.50%, (ii) the “prime rate”, and (iii) Eurodollar Rate plus 1.0% (the “Base Rate”), plus a margin ranging from 0.50% to 1.50%, based on the Company's Consolidated Total Leverage Ratio.
Under the 2021 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 2021 Revolving Credit Facility.
Net availability under the 2021 Revolving Credit Facility was approximately $593.7 million at March 31, 2021. Letters of credit outstanding at March 31, 2021 totaled approximately $1.3 million. At March 31, 2021, the Company was in compliance with all covenants as defined in the 2021 Credit Facility.
2018 Credit Facility
On April 18, 2018, the Company entered into an Amended and Restated Credit Agreement (the "2018 Credit Facility"). The 2018 Credit Facility provided 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, and (ii) a $500 million term loan (the “2018 Term Loan”). The Company repaid the outstanding amounts under the 2018 Term Loan in 2019, and used a portion of the proceeds from the issuance of the 2029 Senior Notes to repay the amount outstanding under the 2018 Revolving Credit Facility in March 2021.
2029 Senior Notes
On March 23, 2021, we consummated the issuance and sale of $1,000 million aggregate principal amount of our 5.250% Senior Notes due 2029 (the "2029 Notes" or "2029 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 March 23, 2021 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee (the "Trustee"). The Notes bear interest at the rate of 5.250% per annum and will mature on April 15, 2029. Interest on the Notes is payable in cash on April 15th and October 15th of each year. The first interest payment date on the 2029 Senior Notes will be October 15, 2021. The 2029 Notes are general unsecured obligations of the Company and are not guaranteed by our subsidiaries.
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 below. The Indenture contains several restrictive covenants including, but not limited to, limitations on the following: (i) the incurrence of additional indebtedness, (ii) payment of dividends or other restricted payments, (iii) the purchase, redemption or retirement of capital stock or subordinated debt, (iv) asset sales, mergers or consolidations, (v) transactions with affiliates, (vi) incurring liens, (vii) entering into sale-leaseback transactions, (viii) providing subsidiary guarantees and (ix) making certain investments, subject in each case to certain exceptions.
The proceeds from the sale of the 2029 Notes was used to repay debt outstanding under the 2018 Credit Facility in connection with entering into the 2021 Credit Facility, as described above, and to redeem our 8.000% Senior Notes due 2026 (the “2026 Senior Notes”).
2026 Senior Notes
Our 2026 Senior Notes bore interest at 8.000% per annum and were scheduled to mature on May 1, 2026. On March 2, 2021, pursuant to an indenture, dated as of April 18, 2018 between the Company and U.S. Bank National Association, as trustee ("Trustee"), the Trustee delivered redemption notices, on behalf of the Company, to holders of the Company’s 2026 Senior Notes to redeem the 2026 Senior Notes on April 1, 2021. The principal amount of the 2026 Senior Notes to be redeemed was $600 million, which represented all of the outstanding principal of the 2026 Senior Notes. The 2026 Senior Notes were redeemed at 100% of their principal, plus an applicable premium, and accrued and unpaid interest as of the redemption date. On March 23, 2021, the proceeds required for the redemption of the 2026 Senior Notes, the applicable premium and accrued interest totaling $647.7 million was irrevocably deposited with the Trustee and held by the Trustee until the date of redemption, April 1, 2021. Refer to Note P - Subsequent Event.
The following table provides the Company’s debt holdings at March 31, 2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Senior Notes
|
$
|
1,600,000
|
|
|
$
|
600,000
|
|
|
Revolving Credit Facility
|
5,000
|
|
|
307,000
|
|
|
Less: Unamortized premiums and debt issuance costs
|
(18,941)
|
|
|
(7,540)
|
|
|
Total debt
|
$
|
1,586,059
|
|
|
$
|
899,460
|
|
|
Less: Current Portion of long-term debt
|
(600,000)
|
|
|
—
|
|
|
Long-term debt
|
$
|
986,059
|
|
|
$
|
899,460
|
|
The Company's 2029 Senior Notes consisted of the following carrying value and estimated fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy Level
|
|
March 31, 2021
|
|
|
|
Maturity Date
|
|
Rate
|
|
|
Carrying Value
|
|
Fair Value
|
|
2029 Senior Notes
|
|
April 15, 2029
|
|
5.250
|
%
|
|
2
|
|
1,000,000
|
|
|
1,042,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Issuance Costs
Deferred debt issuance costs represent the costs associated with the issuance of the Company's financing arrangements. In connection with the 2029 Senior Notes offering in March 2021, the Company recorded $11.8 million in deferred financing costs. The net deferred financing costs associated with the Company's 2026 Senior Notes were $7.2 million at March 31, 2021, and were expensed on April 1, 2021 on the date of the redemption of the 2026 Senior Notes (refer to Note P - Subsequent Event). In connection with entering into the 2021 Credit Facility, the Company recorded $5.4 million in deferred financing costs.
Since the Company can borrow, repay and reborrow principal under the Revolving Credit Facility, the debt issuance costs associated with the Revolving Credit Facility have been classified as other non-current assets in the accompanying condensed consolidated balance sheet. The debt issuance costs associated with the Senior Notes are classified as a reduction of long-term debt in the accompanying condensed consolidated balance sheet.
The following table summarizes unamortized premiums and debt issuance costs at March 31, 2021 and December 31, 2020, and the balance sheet classification in each of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Unamortized premiums and debt issuance costs
|
$
|
33,625
|
|
|
$
|
16,466
|
|
|
Accumulated amortization
|
(6,806)
|
|
|
(6,121)
|
|
|
Unamortized premiums and debt issuance costs, net
|
$
|
26,819
|
|
|
$
|
10,345
|
|
|
|
|
|
|
|
Balance sheet classification:
|
|
|
|
|
Other noncurrent assets
|
$
|
7,878
|
|
|
$
|
2,805
|
|
|
Long-term debt
|
18,941
|
|
|
7,540
|
|
|
|
$
|
26,819
|
|
|
$
|
10,345
|
|
Note I — Stockholders’ Equity
Trust Common Shares
The Trust is authorized to issue 500,000,000 Trust common shares and the Company is authorized to issue a corresponding number of trust interests. The Company will at all times have the identical number of trust interests outstanding as Trust shares. Each Trust share represents an undivided beneficial interest in the Trust, and each Trust share is entitled to one vote per share on any matter with respect to which members of the Company are entitled to vote.
Secondary Offering
In May 2020, the Company completed an offering of 5,000,000 Trust common shares at a public offering price of $17.60 per share. The proceeds to the Company, after deducting the underwriter's discount and offering costs, totaled approximately $83.9 million.
Trust Preferred Shares
The Trust is authorized to issue up to 50,000,000 Trust preferred shares and the Company is authorized to issue a corresponding number of trust preferred interests.
Series C Preferred Shares
On November 20, 2019, the Trust issued 4,000,000 7.875% Series C Preferred Shares (the "Series C Preferred Shares") with a liquidation preference of $25.00 per share, and on December 2, 2019, the Trust issued 600,000 of the Series C Preferred Shares which were sold pursuant to an option to purchase additional shares by the underwriters. Total proceeds from the issuance of the Series C Preferred Shares were $115.0 million, or $111.0 million net 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, 2021, $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 and at March 31, 2021, $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 Holders of $9.1 million in February 2020. The ten-year anniversary of Liberty occurred in March 2020 and the ten-year anniversary of Ergobaby occurred in September 2020. Both of these represented a Holding Event, and the holders of the Allocation Interests elected to defer the distribution until after the end of 2020. The profit allocation payment of $3.3 million related to the Liberty Holding Event and the profit allocation payment of $2.0 million related to the Ergobaby Holding Event were both paid in January 2021.
Reconciliation of net income (loss) available to common shares of Holdings
The following table reconciles net income attributable to Holdings to net income (loss) attributable to the common shares of Holdings (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Net income attributable to Holdings
|
|
$
|
18,994
|
|
|
$
|
3,665
|
|
|
|
|
|
|
Less: Distributions paid - Allocation Interests
|
|
5,214
|
|
|
9,087
|
|
|
|
|
|
|
Less: Distributions paid - Preferred Shares
|
|
6,045
|
|
|
5,542
|
|
|
|
|
|
|
Less: Accrued distributions - Preferred Shares
|
|
2,869
|
|
|
2,869
|
|
|
|
|
|
|
Net income (loss) attributable to common shares of Holdings
|
|
$
|
4,866
|
|
|
$
|
(13,833)
|
|
|
|
|
|
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 months ended March 31, 2021 and 2020 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 months ended March 31, 2021 and 2020 attributable to the common shares of Holdings is calculated as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Net income (loss) attributable to common shares of Holdings
|
|
$
|
4,866
|
|
|
$
|
(13,833)
|
|
|
|
|
|
|
Less: Effect of contribution based profit - Holding Event
|
|
4,054
|
|
|
1,517
|
|
|
|
|
|
|
Net income (loss) attributable to common shares of Holdings
|
|
$
|
812
|
|
|
$
|
(15,350)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares outstanding
|
|
64,900
|
|
|
59,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and fully diluted income (loss) per common share attributable to Holdings
|
|
$
|
0.01
|
|
|
$
|
(0.26)
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Trust Common Shares:
|
|
|
|
|
|
|
|
|
|
January 1, 2021 - March 31, 2021 (1)
|
|
$
|
0.36
|
|
|
$
|
23,364
|
|
|
April 15, 2021
|
|
April 22, 2021
|
|
October 1, 2020 - December 31, 2020
|
|
$
|
0.36
|
|
|
$
|
23,364
|
|
|
January 15, 2021
|
|
January 22, 2021
|
|
July 1, 2020 - September 30, 2020
|
|
$
|
0.36
|
|
|
$
|
23,364
|
|
|
October 15, 2020
|
|
October 22, 2020
|
|
April 1, 2020 - June 30, 2020
|
|
$
|
0.36
|
|
|
$
|
23,364
|
|
|
July 16, 2020
|
|
July 23, 2020
|
|
January 1, 2020 - March 31, 2020
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Shares:
|
|
|
|
|
|
|
|
|
|
January 30, 2021 - April 29, 2021 (1)
|
|
$
|
0.453125
|
|
|
$
|
1,813
|
|
|
April 15, 2021
|
|
April 30, 2021
|
|
October 30, 2020 - January 29, 2021
|
|
$
|
0.453125
|
|
|
$
|
1,813
|
|
|
January 15, 2021
|
|
January 30, 2021
|
|
July 30, 2020 - September 29, 2020
|
|
$
|
0.453125
|
|
|
$
|
1,813
|
|
|
October 15, 2020
|
|
October 30, 2020
|
|
April 30, 2020 - July 29, 2020
|
|
$
|
0.453125
|
|
|
$
|
1,813
|
|
|
July 15, 2020
|
|
July 30, 2020
|
|
January 30, 2020 - April 29, 2020
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred Shares:
|
|
|
|
|
|
|
|
|
|
January 30, 2021 - April 29, 2021 (1)
|
|
$
|
0.4921875
|
|
|
$
|
1,969
|
|
|
April 15, 2021
|
|
April 30, 2021
|
|
October 30, 2020 - January 29, 2021
|
|
$
|
0.4921875
|
|
|
$
|
1,969
|
|
|
January 15, 2021
|
|
January 30, 2021
|
|
July 30, 2020 - September 29, 2020
|
|
$
|
0.4921875
|
|
|
$
|
1,969
|
|
|
October 15, 2020
|
|
October 30, 2020
|
|
April 30, 2020 - July 29, 2020
|
|
$
|
0.4921875
|
|
|
$
|
1,969
|
|
|
July 15, 2020
|
|
July 30, 2020
|
|
January 30, 2020 - April 29, 2020
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Series C Preferred Shares:
|
|
|
|
|
|
|
|
|
|
January 30, 2021 - April 29, 2021 (1)
|
|
$
|
0.4921875
|
|
|
$
|
2,264
|
|
|
April 15, 2021
|
|
April 30, 2021
|
|
October 30, 2020 - January 29, 2021
|
|
$
|
0.4921875
|
|
|
$
|
2,264
|
|
|
January 15, 2021
|
|
January 30, 2021
|
|
July 30, 2020 - September 29, 2020
|
|
$
|
0.4921875
|
|
|
$
|
2,264
|
|
|
October 15, 2020
|
|
October 30, 2020
|
|
April 30, 2020 - July 29, 2020
|
|
$
|
0.4921875
|
|
|
$
|
2,264
|
|
|
July 15, 2020
|
|
July 30, 2020
|
|
January 30, 2020 - April 29, 2020
|
|
$
|
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 April 1, 2021.
Note J — 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 March 31, 2021 and December 31, 2020: