Results of Operations - Business Segments
Branded Consumer Businesses
5.11 Tactical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2019
|
|
March 31, 2018
|
Net sales
|
|
$
|
88,089
|
|
|
100.0
|
%
|
|
$
|
83,957
|
|
|
100.0
|
%
|
Gross profit
|
|
$
|
42,945
|
|
|
48.8
|
%
|
|
$
|
38,551
|
|
|
45.9
|
%
|
SG&A
|
|
$
|
38,171
|
|
|
43.3
|
%
|
|
$
|
36,731
|
|
|
43.7
|
%
|
Operating income (loss)
|
|
$
|
2,338
|
|
|
2.7
|
%
|
|
$
|
(617
|
)
|
|
(0.7
|
)%
|
Net sales
Net sales for the three months ended
March 31, 2019
were
$88.1 million
as compared to net sales of
$84.0 million
for the three months ended
March 31, 2018
, an increase of
$4.1 million
, or
4.9%
. This increase is due primarily to retail and e-commerce sales growth of $5.8 million or 29%, driven by growing demand in direct to consumer channels. Retail sales grew largely due to thirteen new retail store openings since March 2018 (bringing the total store count to forty-five as of
March 31, 2019
). The increase in net sales for the three months ended
March 31, 2019
as compared to the corresponding period in the prior year was offset by a $3.9 million decline in professional sales. During the quarter ended March 31, 2018, 5.11 shipped a larger than usual amount of professional orders as they entered 2018 with a large backlog resulting from the implementation of a new enterprise resource planning (ERP) system in 2017 which affects the quarter over quarter comparison of professional sales.
Gross profit
Gross profit as a percentage of net sales was
48.8%
in the three months ended
March 31, 2019
as compared to
45.9%
for the three months ended
March 31, 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.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended
March 31, 2019
was
$38.2 million
, or
43.3%
of net sales compared to
$36.7 million
, or
43.7%
of net sales for the comparable period in
2018
. The increase in selling, general and administrative expense is consistent with the increase in net sales in the current period.
Income (loss) from operations
Income from operations for the three months ended
March 31, 2019
was
$2.3 million
, an increase of
$3.0 million
when compared to a loss from operations of
$0.6 million
for the same period in
2018
, based on the factors described above.
Ergobaby
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2019
|
|
March 31, 2018
|
Net sales
|
|
$
|
22,452
|
|
|
100.0
|
%
|
|
$
|
22,162
|
|
|
100.0
|
%
|
Gross profit
|
|
$
|
14,218
|
|
|
63.3
|
%
|
|
$
|
14,939
|
|
|
67.4
|
%
|
SG&A
|
|
$
|
9,132
|
|
|
40.7
|
%
|
|
$
|
10,671
|
|
|
48.1
|
%
|
Operating income
|
|
$
|
3,136
|
|
|
14.0
|
%
|
|
$
|
2,340
|
|
|
10.6
|
%
|
Net sales
Net sales for the three months ended
March 31, 2019
were
$22.5 million
, an increase of
$0.3 million
, or
1.3%
, compared to the same period in
2018
. During the three months ended
March 31, 2019
, international sales were approximately
$15.6 million
, representing an increase of
$1.6 million
over the corresponding period in
2018
, primarily as a result of increased sales volume at Ergobaby's Asia-Pacific distributors. Domestic sales were $6.9 million in the first quarter of
2019
, reflecting a decrease of $1.3 million compared to the corresponding period in
2018
. The decrease in domestic sales was primarily the result of a decline in the Tula domestic business.
Gross profit
Gross profit as a percentage of net sales was
63.3%
for the quarter ended
March 31, 2019
, as compared to
67.4%
for the three months ended
March 31, 2018
. The decrease in gross profit was due to a shift in the sales mix from higher margin channels to lower margin channels quarter over quarter.
Selling, general and administrative expense
Selling, general and administrative expense decreased quarter over quarter, with expense of
$9.1 million
, or
40.7%
of net sales for the three months ended
March 31, 2019
as compared to
$10.7 million
or
48.1%
of net sales for the same period of
2018
. The decrease in selling, general and administrative expense as a percentage of net sales in the three months ended
March 31, 2019
as compared to the comparable period in the prior year is due to expenses related to the bankruptcy of a large U.S. retail customer that were incurred in the first quarter of 2018, reduction in marketing spend, lower variable expenses related to sales, and a decrease in payroll expense during the current quarter.
Income from operations
Income from operations for the three months ended
March 31, 2019
increased
$0.8 million
, compared to the same period of
2018
, based on the factors noted above.
Liberty Safe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2019
|
|
March 31, 2018
|
Net sales
|
|
$
|
22,204
|
|
|
100.0
|
%
|
|
$
|
23,453
|
|
|
100.0
|
%
|
Gross profit
|
|
$
|
4,421
|
|
|
19.9
|
%
|
|
$
|
6,249
|
|
|
26.6
|
%
|
SG&A
|
|
$
|
2,863
|
|
|
12.9
|
%
|
|
$
|
3,291
|
|
|
14.0
|
%
|
Operating income
|
|
$
|
1,415
|
|
|
6.4
|
%
|
|
$
|
2,815
|
|
|
12.0
|
%
|
Net sales
Net sales for the quarter ended
March 31, 2019
decreased approximately
$1.2 million
, or
5.3%
, to
$22.2 million
, compared to the corresponding quarter ended
March 31, 2018
. Non-Dealer sales were approximately $7.7 million in the three months ended
March 31, 2019
compared to $9.0 million for the three months ended
March 31, 2018
, representing a decrease of $1.3 million, or 14.4%. The decrease is Non-Dealer sales was primarily due to softer demand in the sporting goods channel. Dealer sales totaled approximately $14.6 million in the three months ended
March 31, 2019
compared to $14.4 million in the same period in
2018
, representing an increase of $0.2 million or 1.4%.
Gross profit
Gross profit as a percentage of net sales totaled approximately
19.9%
and
26.6%
for the quarters ended
March 31, 2019
and
March 31, 2018
, respectively. The decrease in gross profit as a percentage of net sales during the three months ended
March 31, 2019
compared to the same period in
2018
is primarily attributable to cost increases in raw materials and manufacturing and overhead variances resulting from lower production levels in the first quarter of 2019. Liberty has continued to see a rise in raw material costs, particularly the cost of steel, during
2019
as the tariffs on imported steel has led to rising domestic steel prices. The tariffs began affecting steel costs in the second quarter of 2018, therefore the steel costs in the prior year do not yet reflect the effect of the tariffs on steel costs. On average, materials account for approximately 60% of the total costs of a safe, with steel accounting for 40% of material costs.
Selling, general and administrative expense
Selling, general and administrative expense was
$2.9 million
for the three months ended
March 31, 2019
compared to
$3.3 million
for the three months ended
March 31, 2018
. The decrease in selling, general and administrative expense during the current quarter is primarily related to planned expense reductions and the timing of annual adverting spend. Selling, general and administrative expense represented
12.9%
of net sales in the three months ended March 31,
2019
and
14.0%
of net sales for the same period of
2018
.
Income from operations
Income from operations decreased
$1.4 million
during the three months ended
March 31, 2019
to
$1.4 million
, compared to the corresponding period in
2018
. This decrease was primarily a result of the decrease in gross profit for the quarter, for the reasons noted above.
Velocity Outdoor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2019
|
|
March 31, 2018
|
Net sales
|
|
$
|
31,137
|
|
|
100.0
|
%
|
|
$
|
24,407
|
|
|
100.0
|
%
|
Gross profit
|
|
$
|
9,287
|
|
|
29.8
|
%
|
|
$
|
7,079
|
|
|
29.0
|
%
|
SG&A
|
|
$
|
6,543
|
|
|
21.0
|
%
|
|
$
|
5,471
|
|
|
22.4
|
%
|
Operating income
|
|
$
|
341
|
|
|
1.1
|
%
|
|
$
|
273
|
|
|
1.1
|
%
|
Net sales
Net sales for the three months ended
March 31, 2019
were
$31.1 million
, an increase of
$6.7 million
or
27.6%
, compared to the same period in
2018
. The increase in net sales for the three months ended March 31, 2019 is primarily due to the add on acquisition of Ravin Crossbows, which had net sales of $9.9 million in the quarter ended March 31, 2019, partially offset by sales associated with the Junior Reserve Officer Training Corps (JROTC) contract that shipped in the first quarter of 2018 along with general softness in the archery product line.
Gross profit
Gross profit as a percentage of net sales was
29.8%
for the three months ended
March 31, 2019
as compared to
29.0%
in the three months ended
March 31, 2018
. The increase in gross profit of
$2.2 million
was driven primarily by sales associated with the Ravin acquisition.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended
March 31, 2019
was
$6.5 million
, or
21.0%
of net sales compared to
$5.5 million
, or
22.4%
of net sales for the three months ended
March 31, 2018
. The increase in selling, general and administrative expense for the three months ended March 31, 2019 is primarily related to the Ravin acquisition offset by the non-recurrence of the integration fee paid in 2018 to CGM.
Income from operations
Income from operations for the three months ended
March 31, 2019
was
$0.34 million
, an increase of
$0.07 million
when compared to income from operations of
$0.27 million
for the same period in
2018
, based on the factors described above.
Niche Industrial Businesses
Advanced Circuits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2019
|
|
March 31, 2018
|
Net sales
|
|
$
|
23,069
|
|
|
100.0
|
%
|
|
$
|
22,063
|
|
|
100.0
|
%
|
Gross profit
|
|
$
|
10,604
|
|
|
46.0
|
%
|
|
$
|
10,026
|
|
|
45.4
|
%
|
SG&A
|
|
$
|
3,767
|
|
|
16.3
|
%
|
|
$
|
3,658
|
|
|
16.6
|
%
|
Operating income
|
|
$
|
6,481
|
|
|
28.1
|
%
|
|
$
|
5,932
|
|
|
26.9
|
%
|
Net sales
Net sales for the three months ended
March 31, 2019
were
$23.1 million
, an increase of approximately
$1.0 million
or 4.6% compared to the three months ended
March 31, 2018
. The increase in net sales was due to increased sales in Quick-Turn Small-Run PCBs, Long-Lead Time PCBs, Subcontract PCBs, and a decrease in promotions, partially offset by decreased sales in Quick-Turn Production PCBs. Quick-Turn Small-Run PCBs comprised approximately 19.4% of gross sales and Quick-Turn Production PCBs represented approximately 31.8% of gross sales for the
first
quarter of
2019
. Quick-Turn Small-Run PCBs comprised approximately 19.4% of gross sales and Quick-Turn Production PCBs represented approximately 34.3% of gross sales for the
first
quarter
2018
.
Gross profit
Gross profit as a percentage of net sales increased 60 basis points during the three months ended
March 31, 2019
compared to the corresponding period in
2018
(
46.0%
at
March 31, 2019
compared to
45.4%
at
March 31, 2018
) primarily as a result of sales mix.
Selling, general and administrative expense
Selling, general and administrative expense was approximately
$3.8 million
in the three months ended
March 31, 2019
compared to
$3.7 million
in the three months ended
March 31, 2018
. Selling, general and administrative expense represented
16.3%
of net sales for the three months ended
March 31, 2019
compared to
16.6%
of net sales in the corresponding period in
2018
.
Income from operations
Income from operations for the three months ended
March 31, 2019
was approximately
$6.5 million
compared to
$5.9 million
in the same period in
2018
, an increase of approximately
$0.5 million
, principally as a result of the factors described above.
Arnold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2019
|
|
March 31, 2018
|
Net sales
|
|
$
|
30,028
|
|
|
100.0
|
%
|
|
$
|
29,399
|
|
|
100.0
|
%
|
Gross profit
|
|
$
|
7,239
|
|
|
24.1
|
%
|
|
$
|
7,710
|
|
|
26.2
|
%
|
SG&A
|
|
$
|
4,797
|
|
|
16.0
|
%
|
|
$
|
4,999
|
|
|
17.0
|
%
|
Operating income
|
|
$
|
1,477
|
|
|
4.9
|
%
|
|
$
|
1,725
|
|
|
5.9
|
%
|
Net sales
Net sales for the three months ended
March 31, 2019
were approximately
$30.0 million
, an increase of
$0.6 million
compared to the same period in
2018
. The increase in net sales is primarily a result of increased demand in the aerospace and defense markets. International sales were
$12.1 million
in both the three months ended
March 31, 2019
and
March 31, 2018
.
Gross profit
Gross profit for the three months ended
March 31, 2019
was approximately
$7.2 million
compared to approximately
$7.7 million
in the same period of
2018
. Gross profit as a percentage of net sales decreased from
26.2%
for the quarter ended
March 31, 2018
to
24.1%
in the quarter ended
March 31, 2019
principally due to unfavorable currency fluctuations.
Selling, general and administrative expense
Selling, general and administrative expense in the three month period ended
March 31, 2019
was
$4.8 million
, compared to approximately
$5.0 million
for the three months ended
March 31, 2018
. Selling, general and administrative expense was
16.0%
of net sales in the three months ended
March 31, 2019
and
17.0%
in the three months ended
March 31, 2018
.
Income from operations
Income from operations for the three-months ended
March 31, 2019
was approximately
$1.5 million
, a decrease of
$0.2 million
when compared to the same period in
2018
, as a result of the factors noted above.
Clean Earth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2019
|
|
March 31, 2018
|
Net revenues
|
|
$
|
63,632
|
|
|
100.0
|
%
|
|
$
|
58,221
|
|
|
100.0
|
%
|
Gross profit
|
|
$
|
16,634
|
|
|
26.1
|
%
|
|
$
|
15,278
|
|
|
26.2
|
%
|
SG&A
|
|
$
|
11,802
|
|
|
18.5
|
%
|
|
$
|
11,137
|
|
|
19.1
|
%
|
Operating income
|
|
$
|
1,257
|
|
|
2.0
|
%
|
|
$
|
759
|
|
|
1.3
|
%
|
Net revenues
Net revenues for the three months ended
March 31, 2019
were approximately
$63.6 million
, an increase of
$5.4 million
, or
9.3%
, compared to the same period in
2018
. The increase in net revenues is due to acquisitions made in the last year as well as improved performance in the hazardous waste base business. For the three months ended
March 31, 2019
, contaminated soil revenue increased 12% as compared to the same period last year, which is principally attributable to a recent acquisition. Hazardous waste revenues increased 32% principally as a result of recent acquisitions and growth in the base business. Net revenues from dredged material decreased $4.9 million during the three months ended
March 31, 2019
as compared to the same period in
2018
due to the timing of projects. Contaminated soils represented approximately 51% of net revenues for the three months ended
March 31, 2019
and 50% of net revenues for the three months ended
March 31, 2018
.
Gross profit
Gross profit for the three months ended
March 31, 2019
was approximately
$16.6 million
compared to approximately
$15.3 million
in the same period of
2018
, with a majority of the increase in gross profit reflecting the increase in hazardous volume during the current period, recent acquisitions and improved processing efficiencies. Gross profit as a percentage of net revenues was consistent quarter over quarter at
26.2%
for the three-month period ended
March 31, 2018
compared to
26.1%
for the same period ended
March 31, 2019
.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended
March 31, 2019
increased to approximately
$11.8 million
, or
18.5%
, of net revenues, as compared to
$11.1 million
, or
19.1%
, of net revenues for the same period in
2018
. The increased spending is related to the integration costs of recent acquisitions and increased labor expenses as a result of the acquisitions.
Income from operations
Income from operations for the three months ended
March 31, 2019
was approximately
$1.3 million
as compared to income from operations of
$0.8 million
for the three months ended
March 31, 2018
, an increase of
$0.5 million
, primarily as a result of those factors described above.
Foam Fabricators
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2019
|
|
March 31, 2018
|
|
|
|
|
|
|
Pro forma
|
|
|
Net sales
|
|
$
|
30,682
|
|
|
100.0
|
%
|
|
$
|
30,490
|
|
|
100.0
|
%
|
Gross profit
|
|
$
|
8,488
|
|
|
27.7
|
%
|
|
$
|
7,450
|
|
|
24.4
|
%
|
SG&A
|
|
$
|
2,736
|
|
|
8.9
|
%
|
|
$
|
4,418
|
|
|
14.5
|
%
|
Operating income
|
|
$
|
3,506
|
|
|
11.4
|
%
|
|
$
|
786
|
|
|
2.6
|
%
|
Pro forma financial information for Foam Fabricators for the three months ended March 31, 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.
Net sales
Net sales for the quarter ended
March 31, 2019
were
$30.7 million
, an increase of
$0.2 million
, or
0.6%
, compared to the quarter ended
March 31, 2018
. The increase in net sales was primarily due to organic growth within the existing customer base, primarily related to the appliance and protective packaging categories.
Gross profit
Gross profit as a percentage of net sales was
27.7%
and
24.4%
for the three months ended
March 31, 2019
and
2018
, respectively. Cost of sales for the quarter ended March 31, 2018 includes $0.7 million of expense related to the amortization of inventory step-up resulting 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 26.6%. The increase in gross profit as a percentage of net sales in the quarter ended March 31, 2019 was due to a price increase for contract customers effective April 1, 2018 and a price increase for non-contract customers in December 2018 to offset increases in the price of expanded polystyrene ("EPS") resin. A majority of Foam Fabricator's products are made with EPS resin, an oil & natural gas derived polymer with an added expansion agent, therefore raw material costs will increase with increases in the price of oil and natural gas.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended
March 31, 2019
was
$2.7 million
as compared to
$4.4 million
for the three months ended
March 31, 2018
, a decrease of
$1.7 million
. Selling, general and administrative expense for the three months ended March 31, 2018 included $1.5 million in transaction expenses related to the acquisition. Excluding the acquisition expenses, selling, general and administrative expense for the three months ended March 31, 2018 was $2.9 million, which is consistent with the expenses incurred in the current period.
Income from operations
Income from operations was
$3.5 million
for the three months ended
March 31, 2019
as compared to
$0.8 million
for the three months ended
March 31, 2018
, an increase of
$2.7 million
, primarily as a result of the factors noted above.
Sterno
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2019
|
|
March 31, 2018
|
|
|
|
|
|
|
Pro forma
|
|
|
Net sales
|
|
$
|
91,195
|
|
|
100.0
|
%
|
|
$
|
90,027
|
|
|
100.0
|
%
|
Gross profit
|
|
$
|
22,354
|
|
|
24.5
|
%
|
|
$
|
22,231
|
|
|
24.7
|
%
|
SG&A
|
|
$
|
10,093
|
|
|
11.1
|
%
|
|
$
|
10,024
|
|
|
11.1
|
%
|
Operating income
|
|
$
|
7,982
|
|
|
8.8
|
%
|
|
$
|
8,589
|
|
|
9.5
|
%
|
Pro forma financial information for Sterno for the three months ended March 31, 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.
Net sales
Net sales for the three months ended
March 31, 2019
were approximately
$91.2 million
, an increase of
$1.2 million
, or
1.3%
, compared to the same period in
2018
. The net sales variance reflects increased Rimports sales relating to wax, scent charms and room sprays products.
Gross profit
Gross profit as a percentage of net sales decreased from
24.7%
for the three months ended
March 31, 2018
to
24.5%
for the same period ended
March 31, 2019
. The decrease in gross profit percentage as compared to the quarter ended
March 31, 2018
primarily reflects sales mix, with more lower margin products sold in the current quarter versus the prior year.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended
March 31, 2019
and
2018
was consistent quarter over quarter, at approximately
$10.1 million
and
$10.0 million
, respectively. The expense from the prior year quarter reflects $0.6 million in acquisition expenses related to the acquisition of Rimports. Excluding the acquisition expenses, selling, general and administrative expense increased $0.7 million, reflecting higher legal and audit fees. Selling, general and administrative expense represented
11.1%
of net sales for both the three months ended
March 31, 2019
and March 31,
2018
.
Income from operations
Income from operations for the three months ended
March 31, 2019
was approximately
$8.0 million
, a decrease of
$0.6 million
compared to the three months ended March 31, 2018 based on the factors noted above.
Liquidity and Capital Resources
Liquidity
At
March 31, 2019
, we had approximately
$39.8 million
of cash and cash equivalents on hand, a decrease of
$10.9 million
as compared to the year ended
December 31, 2018
. 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:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
(in thousands)
|
|
March 31, 2019
|
|
March 31, 2018
|
Cash (used in) provided by operating activities
|
|
$
|
(8,936
|
)
|
|
$
|
6,643
|
|
|
|
|
|
|
For the
three
months ended
March 31, 2019
, cash flows used in operating activities totaled approximately
$8.9 million
, which represents a
$15.7 million
decrease compared to cash provided by operating activities of
$6.6 million
during the
three
-month period ended
March 31, 2018
. Cash used in operating activities for working capital for the
three
months ended
March 31, 2019
was
$29.4 million
, as compared to cash used in operating activities for working capital of
$10.5 million
for the
three
months ended
March 31, 2018
. The increase in cash used for working capital purposes in the current quarter primarily reflects the effect of our acquisitions that occurred in February 2018 which resulted in a significant increase in operational cash flows, particularly at Rimports, our Sterno add-on acquisition.
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
(in thousands)
|
|
March 31, 2019
|
|
March 31, 2018
|
Cash provided by (used in) investing activities
|
|
$
|
168,944
|
|
|
$
|
(415,628
|
)
|
|
|
|
|
|
Cash flows provided by investing activities for the
three
months ended
March 31, 2019
totaled approximately
$168.9 million
, compared to cash used in investing activities of
$415.6 million
in the same period of
2018
. Cash flows from Manitoba Harvest, which is reflected as discontinued operations, totaled
$51.5 million
in the current quarter and reflects the effect of the sale transaction. Cash provided by investing activities from continuing operations in the current year primarily relates to the proceeds received from the sale of Manitoba Harvest. In the prior year, we had a platform acquisition 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
three
months ended
March 31, 2018
was approximately
$402.8 million
. Capital expenditures in the
three
months ended
March 31, 2019
decreased approximately
$4.6 million
compared to the same period in the prior year, due primarily to larger than typical expenditures at our 5.11 and Arnold businesses in the prior year. We expect capital expenditures for the full year of
2019
to be approximately $45 million to $55 million.
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
(in thousands)
|
|
March 31, 2019
|
|
March 31, 2018
|
Cash (used in) provided by financing activities
|
|
$
|
(172,448
|
)
|
|
$
|
413,418
|
|
|
|
|
|
|
Cash flows used in financing activities totaled approximately
$172.4 million
during the
three
months ended
March 31, 2019
compared to cash flows provided by financing activities of
$413.4 million
during the
three
months ended
March 31, 2018
. The 2018 activity primarily related to the financing of our acquisitions of Foam Fabricators and Rimports in February 2018, which were financed through draws on our 2014 Revolving Credit Facility, partially offset by net proceeds of
$96.7 million
from the Series B Preferred Shares offering in March 2018 which was used to repay a portion of the outstanding amount on the 2014 Revolving Credit Facility. In the current quarter, we used proceeds from the sale of Manitoba Harvest to repay a portion of the outstanding amount on the 2018 Revolving Credit Facility, and paid our distributions on our common and preferred shares.
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.
Due to significant capital expenditures related to the implementation of a new ERP system, warehouse expansion and retail roll out, we granted 5.11 waivers under their intercompany debt agreement effective as of the quarter ended September 30, 2017 through December 31, 2018. The waivers permitted 5.11 to increase its allowable capital expenditure limits and excluded certain capital expenditures associated with the ERP system and warehouse expansion from the calculation of the fixed charge coverage ratio. We further amended the 5.11 intercompany debt agreement during 2018 to allow for an additional $5.0 million outstanding debt to be permitted under 5.11's Term B loan. In the first quarter of 2019, we further 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 March 31, 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. Clean Earth was not in
compliance with the financial covenants under their intercompany loan agreement at December 31, 2018 as a result of financing various add-on acquisitions during the year, and we amended the Clean Earth intercompany debt agreement to grant a waiver to them through the quarter ended December 31, 2019. Except as previously noted, all of our subsidiaries were in compliance with the financial covenants included within their intercompany credit arrangements at March 31, 2019.
As of
March 31, 2019
, we had the following outstanding loans due from each of our businesses:
|
|
|
|
|
|
(in thousands)
|
|
|
5.11 Tactical
|
|
$
|
202,140
|
|
Ergobaby
|
|
$
|
53,280
|
|
Liberty
|
|
$
|
45,839
|
|
Advanced Circuits
|
|
$
|
72,092
|
|
Arnold
|
|
$
|
76,930
|
|
Clean Earth
|
|
$
|
215,110
|
|
Foam Fabricators
|
|
$
|
101,300
|
|
Sterno
|
|
$
|
266,690
|
|
Velocity Outdoor
|
|
$
|
123,819
|
|
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”).
We had
$514.8 million
in net availability under the 2018 Revolving Credit Facility at
March 31, 2019
. The outstanding borrowings under the 2018 Revolving Credit Facility include
$0.3 million
of outstanding letters of credit at
March 31, 2019
.
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
March 31, 2019
included as part of the affirmative covenants in our 2018 Credit Facility.
|
|
|
|
|
|
Description of Required Covenant Ratio
|
|
Covenant Ratio Requirement
|
|
Actual Ratio
|
|
|
|
|
|
Fixed Charge Coverage Ratio
|
|
Greater than or equal to 1.50:1.0
|
|
2:57:1.0
|
Total Secured Debt to EBITDA Ratio
|
|
Less than or equal to 3.50:1.0
|
|
2.12:1.0
|
Total Debt to EBITDA Ratio
|
|
Less than or equal to 5.00:1.0
|
|
3.57:1.0
|
Interest Expense
The components of interest expense and periodic interest charges on outstanding debt are as follows (
in thousands
):
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2019
|
|
2018
|
Interest on credit facilities
|
$
|
8,774
|
|
|
$
|
8,284
|
|
Interest on Senior Notes
|
8,000
|
|
|
—
|
|
Unused fee on Revolving Credit Facility
|
387
|
|
|
452
|
|
Amortization of original issue discount
|
152
|
|
|
255
|
|
Unrealized (gain) loss on interest rate derivative
(1)
|
1,099
|
|
|
(2,901
|
)
|
Other, net
|
170
|
|
|
92
|
|
Interest expense
|
$
|
18,582
|
|
|
$
|
6,182
|
|
|
|
|
|
Average daily balance outstanding - credit facilities
|
$
|
709,297
|
|
|
$
|
808,260
|
|
Effective interest rate -
credit facilities
|
6.0
|
%
|
|
3.1
|
%
|
(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 us to pay interest on the notional amount at the rate of 2.97% in exchange for the three-month LIBOR rate. At
March 31, 2019
, the current portion of the Swap was in a liability position and had a fair value of
$1.0 million
, and the non-current portion of the Swap was in a liability position with a fair value of
$2.0 million
. The fair value of the Swap reflects the present value 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
March 31, 2019
.
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) 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
Three months ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
5.11
|
|
Ergobaby
|
|
Liberty
|
|
Velocity Outdoor
|
|
ACI
|
|
Arnold
|
|
Clean Earth
|
|
Foam
|
|
Sterno
|
|
Consolidated
|
Net income (loss)
(1)
|
$
|
109,622
|
|
|
$
|
(1,870
|
)
|
|
$
|
1,523
|
|
|
$
|
153
|
|
|
$
|
(1,865
|
)
|
|
$
|
3,704
|
|
|
$
|
137
|
|
|
$
|
(2,710
|
)
|
|
$
|
604
|
|
|
$
|
1,446
|
|
|
$
|
110,744
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
—
|
|
|
(445
|
)
|
|
626
|
|
|
118
|
|
|
(693
|
)
|
|
1,061
|
|
|
(263
|
)
|
|
(1,021
|
)
|
|
539
|
|
|
481
|
|
|
403
|
|
Interest expense, net
|
18,410
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
48
|
|
|
(1
|
)
|
|
—
|
|
|
129
|
|
|
—
|
|
|
—
|
|
|
18,582
|
|
Intercompany interest
|
(25,463
|
)
|
|
4,565
|
|
|
979
|
|
|
1,080
|
|
|
2,779
|
|
|
1,737
|
|
|
1,584
|
|
|
4,589
|
|
|
2,277
|
|
|
5,873
|
|
|
—
|
|
Depreciation and amortization
|
359
|
|
|
5,258
|
|
|
2,119
|
|
|
428
|
|
|
3,312
|
|
|
707
|
|
|
1,644
|
|
|
6,169
|
|
|
3,067
|
|
|
5,485
|
|
|
28,548
|
|
EBITDA
|
102,928
|
|
|
7,504
|
|
|
5,247
|
|
|
1,779
|
|
|
3,581
|
|
|
7,208
|
|
|
3,102
|
|
|
7,156
|
|
|
6,487
|
|
|
13,285
|
|
|
158,277
|
|
Gain on sale of business
|
(121,659
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(121,659
|
)
|
Other (income) expense
|
363
|
|
|
(8
|
)
|
|
—
|
|
|
43
|
|
|
11
|
|
|
(58
|
)
|
|
(2
|
)
|
|
136
|
|
|
16
|
|
|
70
|
|
|
571
|
|
Noncontrolling shareholder compensation
|
—
|
|
|
559
|
|
|
225
|
|
|
9
|
|
|
270
|
|
|
6
|
|
|
(15
|
)
|
|
388
|
|
|
254
|
|
|
420
|
|
|
2,116
|
|
Acquisition expenses and other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
366
|
|
|
—
|
|
|
—
|
|
|
366
|
|
Loss on sale of investment
|
5,300
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,300
|
|
Integration services fee
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
281
|
|
|
—
|
|
|
281
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
266
|
|
|
—
|
|
|
58
|
|
|
—
|
|
|
89
|
|
|
—
|
|
|
—
|
|
|
413
|
|
Management fees
|
9,769
|
|
|
250
|
|
|
125
|
|
|
125
|
|
|
125
|
|
|
125
|
|
|
125
|
|
|
125
|
|
|
188
|
|
|
125
|
|
|
11,082
|
|
Adjusted EBITDA
|
$
|
(3,299
|
)
|
|
$
|
8,305
|
|
|
$
|
5,597
|
|
|
$
|
2,222
|
|
|
$
|
3,987
|
|
|
$
|
7,339
|
|
|
$
|
3,210
|
|
|
$
|
8,260
|
|
|
$
|
7,226
|
|
|
$
|
13,900
|
|
|
$
|
56,747
|
|
(1)
Net income (loss) does not include income from discontinued operations for the three months ended March 31, 2019.
Adjusted EBITDA
Three months ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
5.11
|
|
Ergobaby
|
|
Liberty
|
|
Velocity Outdoor
|
|
ACI
|
|
Arnold
|
|
Clean Earth
|
|
Foam
|
|
Sterno
|
|
Consolidated
|
Net income (loss)
(1)
|
$
|
(999
|
)
|
|
$
|
(2,775
|
)
|
|
$
|
674
|
|
|
$
|
1,318
|
|
|
$
|
(1,286
|
)
|
|
$
|
3,118
|
|
|
$
|
91
|
|
|
$
|
(2,316
|
)
|
|
$
|
(597
|
)
|
|
$
|
1,545
|
|
|
$
|
(1,227
|
)
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
—
|
|
|
(1,779
|
)
|
|
262
|
|
|
452
|
|
|
(485
|
)
|
|
887
|
|
|
(135
|
)
|
|
(617
|
)
|
|
(3
|
)
|
|
(443
|
)
|
|
(1,861
|
)
|
Interest expense, net
|
6,037
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
73
|
|
|
—
|
|
|
—
|
|
|
64
|
|
|
—
|
|
|
—
|
|
|
6,182
|
|
Intercompany interest
|
(20,021
|
)
|
|
4,099
|
|
|
1,316
|
|
|
1,012
|
|
|
1,915
|
|
|
1,887
|
|
|
1,630
|
|
|
3,470
|
|
|
1,172
|
|
|
3,520
|
|
|
—
|
|
Depreciation and amortization
|
508
|
|
|
5,481
|
|
|
2,050
|
|
|
363
|
|
|
2,049
|
|
|
842
|
|
|
1,602
|
|
|
5,579
|
|
|
913
|
|
|
2,988
|
|
|
22,375
|
|
EBITDA
|
(14,475
|
)
|
|
5,034
|
|
|
4,302
|
|
|
3,145
|
|
|
2,266
|
|
|
6,734
|
|
|
3,188
|
|
|
6,180
|
|
|
1,485
|
|
|
7,610
|
|
|
25,469
|
|
Loss on sale of fixed assets
|
—
|
|
|
—
|
|
|
—
|
|
|
57
|
|
|
—
|
|
|
|
|
|
49
|
|
|
40
|
|
|
6
|
|
|
—
|
|
|
152
|
|
Noncontrolling shareholder compensation
|
—
|
|
|
612
|
|
|
271
|
|
|
19
|
|
|
381
|
|
|
6
|
|
|
36
|
|
|
388
|
|
|
85
|
|
|
541
|
|
|
2,339
|
|
Acquisition related expenses
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,552
|
|
|
632
|
|
|
2,189
|
|
Integration services fee
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
375
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
281
|
|
|
—
|
|
|
656
|
|
Loss on foreign currency transaction and other
|
1,339
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,339
|
|
Management fees
|
9,543
|
|
|
250
|
|
|
125
|
|
|
125
|
|
|
125
|
|
|
125
|
|
|
125
|
|
|
125
|
|
|
94
|
|
|
125
|
|
|
10,762
|
|
Adjusted EBITDA
(2)
|
$
|
(3,588
|
)
|
|
$
|
5,896
|
|
|
$
|
4,698
|
|
|
$
|
3,346
|
|
|
$
|
3,147
|
|
|
$
|
6,865
|
|
|
$
|
3,398
|
|
|
$
|
6,733
|
|
|
$
|
3,503
|
|
|
$
|
8,908
|
|
|
$
|
42,906
|
|
(1)
Net income (loss) does not include loss from discontinued operations for the three months ended March 31, 2018.
(2)
As a result of the sale of our Manitoba Harvest subsidiary in February 2019, Adjusted EBITDA for the three months ended March 31, 2019 does not include Adjusted EBITDA from Manitoba Harvest of $1.1 million.
Cash Flow Available for Distribution and Reinvestment
The table below details cash receipts and payments that are not reflected on our income statement in order to provide an additional measure of management's estimate of cash available for distribution ("CAD"). CAD is a non-GAAP measure that we believe provides additional, useful information to our shareholders in order to enable them to evaluate our ability to make anticipated quarterly distributions. CAD is not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.
The following table reconciles CAD to net income (loss) and cash flows provided by operating activities, which we consider to be the most directly comparable financial measure calculated and presented in accordance with GAAP.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(in thousands)
|
March 31, 2019
|
|
March 31, 2018
|
Net income (loss)
|
$
|
110,158
|
|
|
$
|
(1,621
|
)
|
Adjustment to reconcile net income (loss) to cash provided by operating activities:
|
|
|
|
Depreciation and amortization
|
28,638
|
|
|
22,933
|
|
Gain on sale of businesses
|
(121,659
|
)
|
|
—
|
|
Amortization of debt issuance costs and original issue discount
|
1,079
|
|
|
1,353
|
|
Unrealized (gain) loss on interest rate hedges
|
1,099
|
|
|
(2,901
|
)
|
Noncontrolling shareholder charges
|
2,205
|
|
|
2,551
|
|
Provision for loss on receivables
|
696
|
|
|
328
|
|
Deferred taxes
|
(2,323
|
)
|
|
(4,311
|
)
|
Other
|
334
|
|
|
(177
|
)
|
Changes in operating assets and liabilities
|
(29,163
|
)
|
|
(11,512
|
)
|
Net cash provided by (used in) operating activities
|
(8,936
|
)
|
|
6,643
|
|
Plus:
|
|
|
|
Unused fee on revolving credit facility
|
387
|
|
|
452
|
|
Integration services fee
(1)
|
281
|
|
|
656
|
|
Successful acquisition costs
|
366
|
|
|
2,189
|
|
Realized loss from foreign currency
(2)
|
363
|
|
|
1,339
|
|
Loss on sale of Tilray Common Stock
|
5,300
|
|
|
—
|
|
Changes in operating assets and liabilities
|
29,163
|
|
|
11,512
|
|
Less:
|
|
|
|
Payment of interest rate swap
|
94
|
|
|
706
|
|
Maintenance capital expenditures:
(3)
|
|
|
|
Compass Group Diversified Holdings LLC
|
—
|
|
|
—
|
|
5.11 Tactical
|
212
|
|
|
1,362
|
|
Advanced Circuits
|
188
|
|
|
97
|
|
Arnold
|
1,112
|
|
|
1,252
|
|
Clean Earth
|
1,350
|
|
|
1,257
|
|
Ergobaby
|
71
|
|
|
288
|
|
Foam Fabricators
|
498
|
|
|
398
|
|
Liberty
|
126
|
|
|
61
|
|
Manitoba Harvest
|
—
|
|
|
86
|
|
Sterno
|
452
|
|
|
384
|
|
Velocity Outdoor
|
988
|
|
|
787
|
|
Other
|
403
|
|
|
282
|
|
Preferred share distribution
|
3,781
|
|
|
1,813
|
|
Estimated cash flow available for distribution and reinvestment
|
$
|
17,649
|
|
|
$
|
14,018
|
|
|
|
|
|
Distribution paid in April 2019/2018
|
$
|
(21,564
|
)
|
|
$
|
(21,564
|
)
|
(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 $2.5 million for the three months ended
March 31, 2019
and $6.2 million for the three months ended
March 31, 2018
.
|
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.
Related Party Transactions
Integrations Services Agreements
Foam Fabricators, which was acquired in 2018, entered into Integration Services Agreements ("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 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 $2.25 million over the term of the ISA, $2.0 million in 2018 and $0.3 million in 2019.
5.11 - Related Party Vendor Purchases
5.11 purchases inventory from a vendor who is a related party to 5.11 through one of the executive officers of 5.11 via the executive's 40% ownership interest in the vendor.
During the three months ended
March 31, 2019
, 5.11 purchased approximately $1.3 million in inventory from the vendor.
Subsequent Event - Profit Allocation Payments
The sale of Manitoba Harvest in February 2019 qualified as a Sale Event under the Company's LLC Agreement. During the second quarter of 2019, the Company declared a distribution to the Allocation Member in connection with the Sale Event of Manitoba Harvest of $7.7 million. This distribution will be paid in the second quarter of 2019. 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.
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
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Total
|
|
Less than 1
Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than
5 Years
|
Long-term debt obligations
(1)
|
$
|
1,369,503
|
|
|
$
|
63,049
|
|
|
$
|
127,504
|
|
|
$
|
211,559
|
|
|
$
|
967,391
|
|
Operating lease obligations
(2)
|
146,138
|
|
|
20,530
|
|
|
48,956
|
|
|
32,220
|
|
|
44,432
|
|
Purchase obligations
(3)
|
510,678
|
|
|
227,814
|
|
|
136,285
|
|
|
111,138
|
|
|
35,441
|
|
Total
(4)
|
$
|
2,026,319
|
|
|
$
|
311,393
|
|
|
$
|
312,745
|
|
|
$
|
354,917
|
|
|
$
|
1,047,264
|
|
|
|
(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 March 31, 2019, including: (i) shareholder distributions of $166.4 million; (ii) estimated management fees of $45.2 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
March 31, 2019
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
, as filed with the Securities and Exchange Commission ("SEC") on February 27, 2019.
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 that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment testing. The qualitative factors we consider include, in part, the general macroeconomic environment, industry and market specific conditions for each reporting unit, financial performance including actual versus planned results and results of relevant prior periods, operating costs and cost impacts, as well as issues or events specific to the reporting unit. If qualitative factors are not sufficient to determine that the fair value of a reporting unit is more likely than not to exceed its carrying value. we will perform a quantitative test the reporting unit whereby we estimate the fair value of the reporting unit using an income approach or market approach, or a weighting of the two methods. Under the income approach, we estimate the fair value of our reporting unit based on the present value of future cash flows. Cash flow projections are based on Management's estimate of revenue growth rates and operating margins and take into consideration industry and market conditions as well as company specific economic factors. The discount rate used is based on the weighted average cost of capital adjusted for the relevant risk associated with the business and the uncertainty associated with the reporting unit's ability to execute on the projected cash flows. Under the market approach, we estimate fair value based on market multiples of revenue and earnings derived from comparable public companies with operating characteristics that are similar to the reporting unit. When market comparables are not meaningful or available, we estimate the fair value of the reporting unit using only the income approach.
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 expect to conclude the goodwill impairment testing during the quarter ended June 30, 2019. 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
- 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
$60.4 million
. The results of the qualitative analysis of our other reporting unit's indefinite-lived intangible assets, which we completed as of March 31, 2019, indicated that the fair value of the indefinite lived intangible assets exceeded their carrying value.
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board ("FASB") issued a comprehensive new revenue recognition standard. The new standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. 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, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods or services, and excludes any sales incentives or taxes collected from customers which are subsequently remitted to government authorities.
The Company’s contracts with customers often include promises to transfer multiple products to a customer. Determining whether the promises are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Once the performance obligations are identified, the Company determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. The Company then allocates the transaction price to each performance obligation in the contract based on a relative stand-alone selling price method. The corresponding revenues are recognized as the related performance obligations are satisfied as discussed above. Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately and therefore observable.
Upon adoption of the new revenue guidance, 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 consistent with previous guidance. These incentives are recorded as a reduction in the transaction price. Under the new 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