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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
COMPASS DIVERSIFIED HOLDINGS
(Exact name of registrant as specified in its charter)
Delaware001-3492757-6218917
(State or other jurisdiction of
incorporation or organization)
(Commission
file number)
(I.R.S. employer
identification number)
COMPASS GROUP DIVERSIFIED HOLDINGS LLC
(Exact name of registrant as specified in its charter)
Delaware001-3492620-3812051
(State or other jurisdiction of
incorporation or organization)
(Commission
file number)
(I.R.S. employer
identification number)
301 Riverside Avenue, Second Floor, Westport, CT 06880
(203) 221-1703
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Shares representing beneficial interests in Compass Diversified HoldingsCODINew York Stock Exchange
Series A Preferred Shares representing beneficial interests in Compass Diversified HoldingsCODI PR ANew York Stock Exchange
Series B Preferred Shares representing beneficial interests in Compass Diversified HoldingsCODI PR BNew York Stock Exchange
Series C Preferred Shares representing beneficial interests in Compass Diversified HoldingsCODI PR CNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer¨Non-accelerated filer¨
Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý

As of April 29, 2022, there were 70,172,175 Trust common shares of Compass Diversified Holdings outstanding.



COMPASS DIVERSIFIED HOLDINGS
QUARTERLY REPORT ON FORM 10-Q
For the period ended March 31, 2022
TABLE OF CONTENTS

2


NOTE TO READER
In reading this Quarterly Report on Form 10-Q, references to:
the “Trust” and “Holdings” refer to Compass Diversified Holdings;
the “LLC” refer to Compass Group Diversified Holdings LLC;
the "Company" refer to Compass Diversified Holdings and Compass Group Diversified Holdings LLC, collectively;
“businesses”, “operating segments”, “subsidiaries” and “reporting units” all refer to, collectively, the businesses controlled by the Company;
the “Manager” refer to Compass Group Management LLC (“CGM”);
the "Trust Agreement" refer to the Third Amended and Restated Trust Agreement of the Trust dated as of August 3, 2021;
the "2021 Credit Facility" refer to the second amended and restated credit agreement entered into on March 23, 2021 among the LLC, the Lenders from time to time party thereto (the "Lenders"), Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (the "agent") and other agents party thereto;
the "2021 Revolving Credit Facility" refers to the $600 million in revolving loans, swing line loans and letters of credit provided by the 2021 Credit Facility that matures in 2026;
the "2018 Credit Facility" refer to the amended and restated credit agreement entered into on April 18, 2018 among the LLC, the Lenders from time to time party thereto (the "Lenders"), Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (the "agent") and other agents party thereto, which was subsequently amended and restated by the 2021 Credit Facility;
the "2018 Revolving Credit Facility" refers to the $600 million in revolving loans, swing line loans and letters of credit provided by the 2018 Credit Facility;
the "2018 Term Loan" refer to the $500 million term loan provided by the 2018 Credit Facility;
the "LLC Agreement" refer to the Sixth Amended and Restated Operating Agreement of the LLC dated as of August 3, 2021, as further amended; and
"we," "us" and "our" refer to the Trust, the LLC and the businesses together.

3


FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, contains both historical and forward-looking statements. We may, in some cases, use words such as "project," "predict," "believe," "anticipate," "plan," "expect," "estimate," "intend," "should," "would," "could," "potentially," "may," or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. All statements other than statements of historical or current fact are “forward-looking statements” for purposes of federal and state securities laws. Forward looking statements include, among other things, (i) statements as to our future performance or liquidity, such as expectations for our results of operation, net income, adjusted EBITDA, and ability to make quarterly distributions and (ii) our plans, strategies and objectives for future operations, including our planned capital expenditures. Forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the SEC, including, but not limited to, those described under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the United States Securities and Exchange Commission (“SEC”) on February 24, 2022, as such factors may be updated from time to time in our filings with the SEC. Many of these risks and uncertainties are beyond our control. Important factors that could cause our actual results, performance and achievements to differ materially from those estimates or projections contained in our forward-looking statements include, among other things:
the adverse impact on the U.S. and global economy, including the markets in which we operate, of the novel coronavirus, which causes the Coronavirus disease 2019 (COVID-19), and the impact in the near, medium and long-term on our business, results of operations, financial position, liquidity or cash flows;
disruption in the global supply chain, labor shortages and high labor costs;
difficulties and delays in integrating, or business disruptions following, acquisitions or an inability to fully realize cost savings and other benefit related thereto;
our ability to successfully operate our businesses on a combined basis, and to effectively integrate and improve future acquisitions;
our ability to remove CGM and CGM’s right to resign;
our organizational structure, which may limit our ability to meet our dividend and distribution policy;
our ability to service and comply with the terms of our indebtedness;
our cash flow available for distribution and reinvestment and our ability to make distributions in the future to our shareholders;
our ability to pay the management fee and profit allocation if and when due;
our ability to make and finance future acquisitions;
our ability to implement our acquisition and management strategies;
the legal and regulatory environment in which our businesses operate;
trends in the industries in which our businesses operate;
changes in general economic, political or business conditions or economic, political or demographic trends in the United States and other countries in which we have a presence, including changes in interest rates and inflation;
risks associated with possible disruption in operations or the economy generally due to terrorism or natural disaster or social, civil or political unrest;
environmental risks affecting the business or operations of our businesses;
our and CGM’s ability to retain or replace qualified employees of our businesses and CGM;
the impact of the tax reclassifications of the Trust;
costs and effects of legal and administrative proceedings, settlements, investigations and claims; and
extraordinary or force majeure events affecting the business or operations of our businesses.
Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which we are not currently aware or which we currently deem immaterial could also cause our actual results to differ.
In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. The forward-looking events discussed in this Quarterly Report on Form 10-Q may not occur. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances, whether as a result of new information, future events or otherwise, except as required by law.

4


PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

COMPASS DIVERSIFIED HOLDINGS
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
2022
December 31,
2021
(in thousands)(Unaudited)
Assets
Current assets:
Cash and cash equivalents$97,345 $157,125 
Accounts receivable, net265,287 268,262 
Inventories, net617,159 562,084 
Prepaid expenses and other current assets69,108 56,575 
Current assets held for sale102,293 99,423 
Total current assets1,151,192 1,143,469 
Property, plant and equipment, net179,177 178,393 
Goodwill791,174 815,405 
Intangible assets, net879,345 872,677 
Other non-current assets136,641 134,317 
Total assets$3,137,529 $3,144,261 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$93,354 $120,405 
Accrued expenses176,964 174,801 
Due to related party13,099 11,705 
Other current liabilities41,942 45,490 
Current liabilities held for sale30,905 29,127 
Total current liabilities356,264 381,528 
Deferred income taxes82,858 84,344 
Long-term debt1,285,304 1,284,826 
Other non-current liabilities109,675 109,033 
Total liabilities1,834,101 1,859,731 
Commitments and contingencies
Stockholders’ equity
Trust preferred shares, 50,000 authorized; 12,600 shares issued and outstanding at March 31, 2022 and December 31, 2021
Series A preferred shares, no par value; 4,000 shares issued and outstanding at March 31, 2022 and December 31, 2021
96,417 96,417 
Series B preferred shares, no par value; 4,000 shares issued and outstanding at March 31, 2022 and December 31, 2021
96,504 96,504 
Series C preferred shares, no par value; 4,600 shares issued and outstanding at March 31, 2022 and December 31, 2021
110,997 110,997 
Trust common shares, no par value, 500,000 authorized; 69,450 shares issued and outstanding at March 31, 2022 and 68,738 issued and outstanding at December 31, 2021
1,143,354 1,123,193 
Accumulated other comprehensive loss(228)(1,028)
Accumulated deficit(313,902)(314,267)
Total stockholders’ equity attributable to Holdings1,133,142 1,111,816 
Noncontrolling interest171,735 175,328 
Noncontrolling interest held for sale(1,449)(2,614)
Total stockholders’ equity1,303,428 1,284,530 
Total liabilities and stockholders’ equity$3,137,529 $3,144,261 
See notes to condensed consolidated financial statements.
5


COMPASS DIVERSIFIED HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended 
 March 31,
(in thousands, except per share data)20222021
Net revenues $510,513 $408,556 
Cost of revenues309,698 240,008 
Gross profit200,815 168,548 
Operating expenses:
Selling, general and administrative expense120,672 104,052 
Management fees14,436 10,798 
Amortization expense21,105 18,589 
Operating income 44,602 35,109 
Other income (expense):
Interest expense, net(17,419)(13,805)
Amortization of debt issuance costs(866)(686)
Other income (expense), net2,036 (2,228)
Income from continuing operations before income taxes28,353 18,390 
Provision for income taxes9,976 5,308 
Income from continuing operations18,377 13,082 
Income from discontinued operations, net of income tax5,370 8,914 
Gain on sale of discontinued operations5,993  
Net income 29,740 21,996 
Less: Net income from continuing operations attributable to noncontrolling interest4,937 1,903 
Less: Net income from discontinued operations attributable to noncontrolling interest1,041 1,099 
Net income attributable to Holdings$23,762 $18,994 
Amounts attributable to Holdings
Income from continuing operations$13,440 $11,179 
Income from discontinued operations, net of income tax4,329 7,815 
Gain on sale of discontinued operations, net of income tax5,993  
Net income attributable to Holdings$23,762 $18,994 
Basic income per common share attributable to Holdings (refer to Note J)
Continuing operations$0.00 $(0.10)
Discontinued operations0.14 0.11 
Basic income per common share attributable to Holdings (refer to Note J)$0.14 $0.01 
Basic weighted average number of shares of common shares outstanding69,375 64,900 
Cash distributions declared per Trust common share (refer to Note J)$0.25 $0.36 




See notes to condensed consolidated financial statements.
6


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

Three months ended 
 March 31,
(in thousands)20222021
Net income $29,740 $21,996 
Other comprehensive income
Foreign currency translation adjustments25 (281)
Pension benefit liability, net775 763 
Other comprehensive income 800 482 
Total comprehensive income, net of tax$30,540 $22,478 
Less: Net income attributable to noncontrolling interests5,978 3,002 
Less: Other comprehensive income attributable to noncontrolling interests5 2 
Total comprehensive income attributable to Holdings, net of tax $24,557 $19,474 

See notes to condensed consolidated financial statements.

7


COMPASS DIVERSIFIED HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)Trust Preferred SharesTrust Common SharesAccumulated DeficitAccumulated Other
Comprehensive
Income (Loss)
Stockholders' Equity Attributable
to Holdings
Non-
Controlling
Interest
Non-
Controlling
Interest Attributable to Disc. Ops.
Total
Stockholders’
Equity
Series ASeries BSeries C
Balance — January 1, 2021$96,417 $96,504 $110,997 $1,008,564 $(211,002)$(1,456)$1,100,024 $123,463 $(3,339)$1,220,148 
Net income — — — — 18,994 — 18,994 1,903 1,099 21,996 
Total comprehensive income, net— — — — — 482 482 — — 482 
Option activity attributable to noncontrolling shareholders— — — — — — — 2,640 131 2,771 
Effect of subsidiary stock option exercise— — — — — — —  70 70 
Distributions paid - Allocation interests— — — — (5,214)— (5,214)— — (5,214)
Distributions paid - Trust Common Shares— — — — (23,364)— (23,364)— — (23,364)
Distributions paid - Trust Preferred Shares— — — — (6,045)— (6,045)— — (6,045)
Balance — March 31, 2021$96,417 $96,504 $110,997 $1,008,564 $(226,631)$(974)$1,084,877 $128,006 $(2,039)$1,210,844 
Balance — January 1, 2022$96,417 $96,504 $110,997 $1,123,193 $(314,267)$(1,028)$1,111,816 $175,328 $(2,614)$1,284,530 
Net income — — — — 23,762 — 23,762 4,937 1,041 29,740 
Total comprehensive income, net— — — — — 800 800 — — 800 
Issuance of Trust common shares— — — 20,161 — — 20,161 — — 20,161 
Option activity attributable to noncontrolling shareholders— — — — — — — 2,681 124 2,805 
Effect of subsidiary stock option exercise— — — — — — — 390 — 390 
Purchase of noncontrolling interest— — — —  —  (309)— (309)
Distributions paid to noncontrolling shareholders— — — — — — — (11,292)— (11,292)
Distributions paid - Trust Common Shares— — — — (17,352)— (17,352)— — (17,352)
Distributions paid - Trust Preferred Shares— — — — (6,045)— (6,045)— — (6,045)
Balance — March 31, 2022$96,417 $96,504 $110,997 $1,143,354 $(313,902)$(228)$1,133,142 $171,735 $(1,449)$1,303,428 
See notes to condensed consolidated financial statements.
8


COMPASS DIVERSIFIED HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three months ended March 31,
(in thousands)20222021
Cash flows from operating activities:
Net income $29,740 $21,996 
Income from discontinued operations5,370 8,914 
Gain on sale of discontinued operations5,993  
Income from continuing operations18,377 13,082 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense9,927 8,557 
Amortization expense - intangibles21,105 18,589 
Amortization expense - inventory step-up2,261  
Amortization of debt issuance costs and premium866 603 
Noncontrolling stockholder stock based compensation2,681 2,640 
Provision for receivable and inventory reserves(1,572)3,501 
Deferred taxes692 1,673 
Other147 31 
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable1,830 (9,153)
Inventories(56,153)(17,526)
Other current and non-current assets(4,798)(3,957)
Accounts payable and accrued expenses(36,596)5,077 
Cash (used in) provided by operating activities - continuing operations(41,233)23,117 
Cash provided by operating activities - discontinued operations7,704 13,273 
Cash (used in) provided by operating activities(33,529)36,390 
Cash flows from investing activities:
Acquisitions, net of cash acquired(3,636)(34,257)
Purchases of property and equipment(10,391)(7,303)
Proceeds from sale of businesses5,993  
Other investing activities(205)(305)
Cash used in investing activities - continuing operations(8,239)(41,865)
Cash used in investing activities - discontinued operations(53)(402)
Cash used in investing activities(8,292)(42,267)
9


 Three months ended March 31,
(in thousands)20222021
Cash flows from financing activities:
Proceeds from issuance of Trust common shares, net20,161  
Borrowings under credit facility 143,000 
Repayments under credit facility (445,000)
Proceeds from issuance of Senior Notes 1,000,000 
Redemption of Senior Notes (647,688)
Distributions paid - common shares(17,352)(23,364)
Distributions paid - preferred shares(6,045)(6,045)
Distributions paid - allocation interests (5,214)
Distributions paid to noncontrolling shareholders(11,292) 
Net proceeds provided by noncontrolling shareholders390 70 
Purchase of noncontrolling interest(309) 
Debt issuance costs (17,158)
Other(5)(94)
Net cash used in financing activities(14,452)(1,493)
Foreign currency impact on cash(259)(182)
Net decrease in cash and cash equivalents(56,532)(7,552)
Cash and cash equivalents — beginning of period (1)
160,733 70,744 
Cash and cash equivalents — end of period (2)
$104,201 $63,192 
(1) Includes cash from discontinued operations of $3.6 million at January 1, 2022 and $10.7 million at January 1, 2021.
(2) Includes cash from discontinued operations of $6.9 million at March 31, 2022 and $7.6 million at March 31, 2021.













See notes to condensed consolidated financial statements.
10


COMPASS DIVERSIFIED HOLDINGS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2022

Note A - Presentation and Principles of Consolidation
Compass Diversified Holdings, a Delaware statutory trust (the "Trust") and Compass Group Diversified Holdings LLC, a Delaware limited liability company (the "LLC"), were formed to acquire and manage a group of small and middle-market businesses headquartered in North America. Collectively, Compass Diversified Holdings and Compass Group Diversified Holdings, LLC are referred to as the "Company". In accordance with the Third Amended and Restated Trust Agreement, dated as of August 3, 2021 (as further amended, the "Trust Agreement"), the Trust is sole owner of 100% of the Trust Interests (as defined in the LLC’s Sixth Amended and Restated Operating Agreement, dated as of August 3, 2021 (as further amended, the "LLC Agreement")) of the LLC and, pursuant to the LLC Agreement, the LLC has, outstanding, the identical number of Trust Interests as the number of outstanding common shares of the Trust. The LLC is the operating entity with a board of directors and other corporate governance responsibilities, similar to that of a Delaware corporation.
The LLC is a controlling owner of ten businesses, or reportable operating segments, at March 31, 2022. The segments are as follows: 5.11 Acquisition Corp. ("5.11"), Boa Holdings Inc. ("BOA"), The Ergo Baby Carrier, Inc. ("Ergobaby"), Lugano Diamonds & Jewelry, Inc. ("Lugano Diamonds" or "Lugano"), Marucci Sports, LLC ("Marucci Sports" or "Marucci"), Velocity Outdoor, Inc. ("Velocity Outdoor" or "Velocity"), Compass AC Holdings, Inc. ("ACI" or "Advanced Circuits"), AMT Acquisition Corporation ("Arnold"), FFI Compass, Inc. ("Altor Solutions" or "Altor") (formerly "Foam Fabricators"), and The Sterno Group, LLC ("Sterno"). At March 31, 2021, Advanced Circuits has been classified as held-for-sale. Refer to Note C - "Discontinued Operations" and Note Q- "Subsequent Events" for further discussion of Advanced Circuits. 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 LLC 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, 2022 and March 31, 2021 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, 2021.
Consolidation
The condensed consolidated financial statements include the accounts of the Company, as well as the businesses acquired as of their respective acquisition date. All significant intercompany accounts and transactions have been eliminated in consolidation. Discontinued operating entities are reflected as discontinued operations in the Company's results of operations and statements of financial position.
Discontinued Operations
On October 13, 2021, the LLC entered into a definitive Agreement and Plan of Merger to sell its majority owned subsidiary, Compass AC Holdings, Inc. ("ACI" or "Advanced Circuits"), which met the criteria to be classified as a discontinued operation as of December 31, 2021 and March 31, 2022. As a result, the Company reported the results of operations of ACI as discontinued operations in the condensed consolidated statements of operations for all periods presented. In addition, the assets and liabilities associated with this business have been reclassified as held for sale in the consolidated balance sheets.
11


The Company completed the sale of Liberty Safe Holding Corporation ("Liberty") during the third quarter of 2021. The results of operations of Liberty are reported as discontinued operations in the condensed consolidated statements of operations for the three months ended March 31, 2021. Refer to Note C - "Discontinued Operations" for additional information. Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations.
Seasonality
Earnings of certain of our operating segments are seasonal in nature due to various recurring events, holidays and seasonal weather patterns, as well as the timing of our acquisitions during a given year. Historically, the third and fourth quarters produce the highest net sales during our fiscal year.
Change in Tax Status Election
Effective September 1, 2021 (the "Effective Date"), the Trust elected to be treated as a corporation for U.S. federal income tax purposes. Prior to the Effective Date, the Trust was treated as a partnership for U.S. federal income tax purposes and the Trust’s items of income, gain, loss and deduction flowed through from the Trust to the shareholders, and the Trust shareholders were subject to income taxes on their allocable share of the Trust’s income and gain. After the Effective Date, the Trust is taxed as a corporation and is subject to U.S. federal corporate income tax at the Trust level, but items of income, gain, loss and deduction will not flow through to Trust shareholders. Trust shareholders will no longer receive an IRS Schedule K-1. After the Effective Date, distributions from the Trust will be treated as dividends to the extent the Trust has accumulated or current earnings and profits. If the Trust does not have current or accumulated earnings and profits available for distribution, then the distribution will be treated as a return of capital and reduce Trust shareholders’ basis in their shares.
Prior to the Effective Date, each of the LLC’s majority owned subsidiaries were treated as corporations for U.S. federal income tax purposes. The election did not change the tax status of any LLC subsidiary, and each majority owned LLC subsidiary is still treated as a corporation for U.S. federal income tax purposes.
After the Effective Date, the Trust will no longer be taxed as a pass through entity for U.S. federal income tax purposes. Accordingly, the Trust will no longer issue Schedule K-1’s, nor will Trust shareholders be allocated any pass through income, loss, expense, deduction or credit (including “UBIT”) from the Trust.
Note B — Acquisitions
Acquisition of Lugano Diamonds & Jewelry, Inc.
On September 3, 2021, the LLC, through its newly formed acquisition subsidiaries, Lugano Holding, Inc., a Delaware corporation (“Lugano Holdings”), and Lugano Buyer, Inc., a Delaware corporation (“Lugano Buyer”) and a wholly-owned subsidiary of Lugano Holdings, acquired the issued and outstanding shares of stock of Lugano Diamonds & Jewelry Inc. ("Lugano") other than the certain rollover shares (the “Lugano Transaction”). The Lugano Transaction was effectuated pursuant to a Stock Purchase Agreement (the “Lugano Purchase Agreement”), also dated September 3, 2021, by and among Lugano Buyer, the Sellers named therein (“Sellers”) and Mordechai Haim Ferder in his individual capacity and as initial representative of the Sellers. Lugano is a leading designer, manufacturer and marketer of high-end, one-of-a-kind jewelry sought after by some of the world’s most discerning clientele. Lugano conducts sales via its own retail salons as well as pop-up showrooms at Lugano-hosted or sponsored events in partnership with influential organizations in the equestrian, art and philanthropic community. Lugano is headquartered in Newport Beach, California.
The LLC made loans to, and purchased a 60% equity interest in, Lugano. The purchase price, including proceeds from noncontrolling shareholders and net of transaction costs, was $263.3 million. The selling shareholders invested in the transaction along with the LLC, representing 40% 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 LLC in the acquisition and will continue to provide integration services during the first year of the LLC's ownership of Lugano. CGM will receive integration service fees of $2.3 million payable quarterly over a twelve month period as services are rendered which payments began in the quarter ended December 31, 2021. The LLC incurred $1.8 million of transaction costs in conjunction with the Lugano acquisition, which was included in selling, general and administrative expense in the consolidated statements of operations during the third quarter of 2021. The LLC funded the acquisition with cash on hand and a $120 million draw on its 2021 Revolving Credit Facility.
12


The results of operations of Lugano have been included in the consolidated results of operations since the date of acquisition. Lugano'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)Preliminary Purchase Price AllocationMeasurement Period AdjustmentsFinal Purchase Price Allocation
Assets:
Cash$1,433 $ $1,433 
Accounts receivable (1)
20,954  20,954 
Inventory 85,794 9,419 95,213 
Property, plant and equipment
2,743 392 3,135 
Intangible assets 82,454 82,454 
Goodwill158,780 (72,443)86,337 
Other current and noncurrent assets4,979 4,114 9,093 
Total assets$274,683 $23,936 $298,619 
Liabilities and noncontrolling interest:
Current liabilities$7,129 $58 $7,187 
Other liabilities 99,381 755 100,136 
Deferred tax liabilities 23,123 23,123 
Noncontrolling interest68,000  68,000 
Total liabilities and noncontrolling interest$174,510 $23,936 $198,446 
Net assets acquired$100,173 $ $100,173 
Noncontrolling interest68,000  68,000 
Intercompany loans to business99,381 (2,420)96,961 
$267,554 $(2,420)$265,134 
Acquisition consideration
Purchase price$256,000 $ $256,000 
Cash acquired (estimated)1,554 (120)1,434 
Net working capital adjustment10,000 (2,300)7,700 
Total purchase consideration$267,554 $(2,420)$265,134 
Less: Transaction costs1,827  1,827 
Net purchase price$265,727 $(2,420)$263,307 
(1) The fair value of accounts receivable approximates book value acquired.
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. Inventory is recognized at fair value, with finished goods stated at selling price less an estimated cost to sell. 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 $86.3 million reflects the strategic fit of Lugano 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 Lugano acquisition are as follows (in thousands):
13


Intangible AssetsFair ValueEstimated Useful Lives
Tradename$48,433 18 years
Customer relationships34,021 15 years
$82,454 
The tradename was considered the primary intangible asset and was valued at $48.4 million using a multi-period excess earnings method. The customer relationships were valued at $34.0 million using a multi period excess earnings method. The multi period excess earnings method assumes an asset has value to the extent that it enables its owners to earn a return in excess of the other assets utilized in the business.
Unaudited pro forma information
The following unaudited pro forma data for the three months ended March 31, 2021 gives effect to the acquisition of Lugano, as described above, and the dispositions of Liberty Safe and ACI, as if these transactions had been completed as of January 1, 2021. 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, 2021
Net sales$437,995 
Gross profit$183,722 
Operating income$43,260 
Net income from continuing operations$18,090 
Net income from continuing operations attributable to Holdings $13,861 
Basic and fully diluted net loss per share attributable to Holdings$0.00 
Other acquisitions
Marucci
Lizard Skins - On October 22, 2021, Marucci Sports acquired Lizard Skins, LLC ("Lizard Skins"), an industry leading provider of sporting goods accessories that revolve around the hand-to-grip interface, for an enterprise value of approximately $47.0 million, excluding customary closing adjustments. The acquisition and related transaction costs were funded through an additional term loan of $44.1 million under the Marucci inter-company credit agreement with the LLC, a draw on the existing Marucci revolving credit facility with the Company, and rollover equity from the selling shareholders of Lizard Skins. Marucci issued 11,915 shares to the selling shareholders in exchange for the rollover equity, which represents an ownership interest of approximately 1% in Marucci. Marucci paid approximately $1.4 million in transaction expenses in connection with the acquisition of Lizard Skins. Lizard Skins is a designer and seller of branded grip products, protective equipment, bags and apparel for use in baseball, cycling, hockey, Esports and lacrosse. The acquisition of Lizard Skins will allow Marucci to build on its leading position in diamond sports while simultaneously developing Marucci's presence in new sports markets such as hockey and cycling. Marucci recorded a purchase price allocation, including goodwill of approximately $10.1 million, which is expected to be deductible for income tax purposes, and intangible assets of $27.9 million. The purchase price allocation is expected to be finalized in the second quarter of 2022.

Altor Solutions
Plymouth Foam - On October 5, 2021, Altor acquired Plymouth Foam, LLC (“Plymouth”), a manufacturer of protective packaging and componentry, for an enterprise value of approximately $56.0 million, excluding customary closing adjustments. The acquisition and related transaction costs were funded through an additional term loan of $52.0 million under the Altor intercompany credit agreement and a draw on the existing Altor intercompany revolving credit facility with the LLC. Altor paid approximately $0.4 million in transaction fees in connection with the acquisition
14


of Plymouth. Plymouth was founded in 1978 and is based in Plymouth, Wisconsin. Plymouth supplies a wide array of high value products, including custom protective packaging, cold chain packaging and internal components made from expanded polystyrene and expanded polypropylene. Plymouth’s complementary product portfolio will allow Altor to be able to further expand its business and capabilities. Altor recorded a purchase price allocation, including goodwill of approximately $15.5 million, which is not expected to be deductible for income tax purposes, and intangible assets of $20.1 million. The purchase price allocation was finalized in the first quarter of 2022.
Polyfoam - On July 1, 2020, Altor 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's 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 included a potential earnout of $1.4 million if Polyfoam achieved certain financial metrics. The full amount of the earnout was paid during the first quarter of 2022.
Arnold
Ramco - 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 $34.3 million. The acquisition and related transaction costs were funded through an additional equity investment in Arnold by the LLC 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. In connection with the acquisition, Arnold recorded a purchase price allocation of $12.4 million of goodwill, which is not expected to be deductible for income tax purposes and $12.7 million in intangible assets. The remainder of the purchase consideration was allocated to net assets acquired. The purchase price allocation was finalized in the fourth quarter of 2021.
Note C — Discontinued Operations
Advanced Circuits Merger Agreement
On October 13, 2021, the LLC, as the representative (the “Sellers Representative”) of the holders (the “AC Sellers”) of stock and options of Compass AC Holdings, Inc. (“Advanced Circuits”), a majority owned subsidiary of the LLC, entered into a definitive Agreement and Plan of Merger (the “AC Agreement”) with Tempo Automation, Inc. (“AC Buyer”), Aspen Acquisition Sub, Inc. (“AC Merger Sub”) and Advanced Circuits, pursuant to which AC Buyer will acquire all of the issued and outstanding securities of Advanced Circuits, the parent company of the operating entity, Advanced Circuits, Inc., through a merger of AC Merger Sub with and into Advanced Circuits, with Advanced Circuits surviving the merger and becoming a wholly owned subsidiary of AC Buyer (the “AC Merger”). Under the terms of the Agreement, the AC Sellers will receive consideration in the amount of $310 million, composed of $240 million in cash and $70 million in common stock of a publicly traded special purpose acquisition company (“SPAC”) selected by AC Buyer to acquire AC Buyer upon the closing of the transaction, excluding certain working capital and other adjustments. In addition, the AC Sellers may receive 2.4 million additional shares of SPAC common stock within five years, subject to SPAC stock price performance. The LLC owns approximately 67% of the outstanding stock of Advanced Circuits on a fully diluted basis and expects to receive approximately 77% of the gross consideration payable under the Agreement. This amount is in respect of the LLC’s outstanding loans to Advanced Circuits and its equity interests in Advanced Circuits. The AC Merger is conditioned on, among other things, the closing of a business combination between AC Buyer and a SPAC. In connection with the AC Merger, AC Buyer announced its entry into a definitive merger agreement for a business combination (the “SPAC Transaction”) with a SPAC, ACE Convergence Acquisition Corp. (“ACE”). In order to obtain shareholder approval of the SPAC Transaction, ACE had previously scheduled and announced an extraordinary general meeting of shareholders for May 5, 2022. On May 2, 2022, ACE postponed the extraordinary general meeting to allow additional time to revise and finalize its financing arrangements with respect to the SPAC Transaction. There can be no assurances that all of the conditions to closing of the AC Merger, which include the closing of the SPAC Transaction, will be satisfied.
The sale of Advanced Circuits met the criteria for the assets to be classified as held for sale as of December 31, 2021 and March 31, 2022, and is presented as discontinued operations in the accompanying consolidated financial statements for all periods presented. Summarized results of operations of Advanced Circuits are as follows (in thousands):
15


Three months ended March 31, 2022Three months ended March 31, 2021
Net sales$23,249 $21,562 
Gross profit$10,930 $9,404 
Operating income $6,524 $5,495 
Income from continuing operations before income taxes (1)
$6,477 $5,491 
Provision for income taxes$1,107 $771 
Income from discontinued operations (1)
$5,370 $4,720 
(1) The results of operations for the three months ended March 31, 2022 and 2021, each exclude $1.7 million and $1.9 million, respectively, of intercompany interest expense.
The following table presents summary balance sheet information of ACI that is presented as held for sale as of March 31, 2022 and December 31, 2021 (in thousands):
March 31,
2022
December 31,
2021
Assets
Cash and cash equivalents$6,857 $3,610 
Accounts receivable, net9,502 9,447 
Inventories, net3,928 3,660 
Prepaid expenses and other current assets688 430 
Current assets held for sale$20,975 $17,147 
Property, plant and equipment, net7,624