CODI · Read the filing

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Item 7 contains forward-looking statements. Forward-looking statements in this Annual Report on Form 10-K are subject to a number of risks and uncertainties, some of which are beyond our control. Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which we are not currently aware or which we currently deem immaterial could also cause our actual results to differ, including those discussed in the sections entitled “Forward-Looking Statements” and “Risk Factors” included elsewhere in this Annual Report.

Overview

Compass Diversified Holdings, a Delaware statutory trust, was incorporated in Delaware on November 18, 2005. Compass Group Diversified Holdings LLC, a Delaware limited liability Company, was also formed on November 18, 2005. In accordance with the Trust Agreement, the Trust is sole owner of 100% of the Trust Interests (as defined in the LLC Agreement) of the Company and, pursuant to the LLC Agreement, the Company has outstanding the identical number of Trust Interests as the number of outstanding shares of the Trust. Sostratus LLC owns all of our Allocation Interests. The Company is the operating entity with a board of directors and other corporate governance responsibilities, similar to that of a Delaware corporation.

The Trust and the Company were formed to acquire and manage a group of small and middle-market businesses headquartered in North America. We characterize small and middle market businesses as those that generate annual cash flows of up to $75 million. We focus on companies of this size because we believe that these companies are more able to achieve growth rates above those of their relevant industries and are also frequently more amenable to efforts to improve earnings and cash flow.

In pursuing new acquisitions, we seek businesses with the following characteristics:

•North American base of operations;

•stable and growing earnings and cash flow;

•maintains a significant market share in defensible industry niche (i.e., has a “reason to exist”);

•solid and proven management team with meaningful incentives;

•low technological and/or product obsolescence risk; and

•a diversified customer and supplier base.

Our management team’s strategy for our subsidiaries involves:

◦utilizing structured incentive compensation programs tailored to each business in order to attract, recruit and retain talented managers to operate our businesses;

◦regularly monitoring financial and operational performance, instilling consistent financial discipline, and supporting management in the development and implementation of information systems to effectively achieve these goals;

◦assisting management in their analysis and pursuit of prudent organic cash flow growth strategies (both revenue and cost related);

◦identifying and working with management to execute attractive external growth and acquisition opportunities; and

•forming strong subsidiary level boards of directors, including independent directors, to supplement management in their development and implementation of strategic goals and objectives.

Based on the experience of our management team and its ability to identify and negotiate acquisitions, we believe we are well positioned to acquire additional attractive businesses. Our management team has a large network of approximately 2,000 deal intermediaries to whom it actively markets and who we expect to expose us to potential acquisitions. Through this network, as well as our management team’s active proprietary transaction sourcing efforts, we typically have a substantial pipeline of potential acquisition targets. In consummating transactions, our management team has, in the past, been able to successfully navigate complex situations surrounding acquisitions, including corporate spin-offs, transitions of family-owned businesses, management buy-outs and reorganizations. We believe the flexibility, creativity, experience and expertise of our management team in structuring transactions

provides us with a strategic advantage by allowing us to consider non-traditional and complex transactions tailored to fit a specific acquisition target.

In addition, because we intend to fund acquisitions through the utilization of our 2018 Revolving Credit Facility, we do not expect to be subject to delays in or conditions by closing acquisitions that would be typically associated with transaction specific financing, as is typically the case in such acquisitions. We believe this advantage is a powerful one and is highly unusual in the marketplace for acquisitions in which we operate.

Initial public offering and Company formation

On May 16, 2006, we completed our initial public offering of 13,500,000 shares of the Trust (the “IPO”). Subsequent to the IPO the Company’s board of directors engaged our Manager to externally manage the day-to-day operations and affairs of the Company, oversee the management and operations of the businesses and to perform those services customarily performed by executive officers of a public company.

From May 16, 2006 through December 31, 2020, we purchased twenty-one businesses (each of our businesses is treated as a separate operating segment) and disposed of ten businesses. The tables below reflect summarized information relating to our acquisitions and dispositions from the date of our IPO through December 31, 2020 (in thousands):

Acquisitions

Ownership Interest - December 31, 2020

Business Acquisition Date CODI Purchase Price Primary Diluted

(1)The total purchase price for CBS Holdings includes the acquisition of Staffmark Investment LLC in January 2008 for a purchase price of $128.6 million. The Company renamed its CBS Personnel business Staffmark subsequent to the acquisition.

(2) Velocity Outdoor (formerly "Crosman Corp.") was purchased by the Company in May 2006 and subsequently sold in January 2007. We reacquired Velocity Outdoor in June 2017.

(3)The total purchase price does not reflect add-on acquisitions made by our businesses subsequent to their purchase by CODI unless indicated.

(4) FOX completed an IPO of its common stock in August 2013 in which we sold a 22% interest in FOX, reducing our ownership interest to 53%.9. In July 2014, FOX completed a secondary offering in which we sold a 12% interest in FOX, reducing our ownership interest to 41% and resulting in the deconsolidation of FOX from our financial results. We subsequently sold our remaining shares of FOX and now hold no ownership interest in FOX. We recognized total net proceeds from the sale of our FOX shares of approximately $465.1 million.

(5) The total purchase price of Sterno includes the acquisition of Rimports in February 2018 for a purchase price of $154.4 million.

Dispositions

(1) CODI portion of the net proceeds from disposition includes debt and equity proceeds and reflects the accounting for the redemption of the sold business's minority shareholders and transaction expenses.

(2) Gain (loss) recognized on sale of our businesses is calculated by deducting our total invested capital from the net sale proceeds received.

(3) Sale price of Manitoba Harvest was C$370 million. Translation to USD is as of the date of sale.

* We made loans to and purchased a controlling interest in FOX on January 4, 2008, for approximately $80.4 million. In August 2013, FOX completed an initial public offering of its common stock. As a result of the initial public offering, our ownership interest in FOX was reduced to approximately 53.9%. No gain was reflected as a result of the sale of our FOX shares in the initial public offering because our majority classification of FOX did not change. FOX used a portion of their net proceeds received from the sale of their shares as well as proceeds from a new external FOX credit facility to repay $61.5 million in outstanding indebtedness to us under their existing credit facility with us. In July 2014, through a secondary offering, our ownership in FOX was lowered from approximately 54% to approximately 41%, and as a result we deconsolidated FOX as of July 10, 2014. In March and August 2016, through two more secondary offerings and a share repurchase by FOX, our ownership in the outstanding common stock of FOX was further lowered to approximately 23% as of September 30, 2016. In November 2016, through another secondary offering, our ownership in the outstanding common stock of FOX was further lowered to approximately 14%. On March 13, 2017, FOX closed on a secondary public offering of 5,108,718 shares of FOX common stock held by CODI, which represented CODI's remaining investment in FOX. We recognized total net proceeds from the sales of our FOX shares of approximately $465.1 million, plus proceeds from the repayment of the FOX credit facility of $61.5 million upon completion of their initial public offering, and a total gain of $428.7 million.

We are dependent on the earnings of, and cash receipts from, the businesses that we own in order to meet our corporate overhead and management fee expenses and to pay distributions. The earnings and distributions of our businesses are generally lowest in the first quarter, and strongest in the third and fourth quarter, of each fiscal year. These earnings and distributions, net of any non-controlling interest in these businesses, are available to:

•meet capital expenditure requirements, management fees and corporate overhead charges;

•fund distributions from the businesses to the Company; and

•be distributed by the Trust to shareholders.

2020 Highlights and Recent Events

Sale of Trust Common Shares

In May 2020, the Company completed an offering of 5,000,000 Trust common shares at a public offering price of $17.60 per share. The net proceeds to the Company, after deducting the underwriter's discount and offering costs, totaled approximately $83.9 million.

Issuance of Senior Notes

On May 7, 2020, the Company consummated the issuance and sale of $200 million aggregate principal amount of its 8.000% Senior Notes due 2026 (the "Additional Notes"). The proceeds from the Additional Notes were used to pay down the amount outstanding on the Company's 2018 Revolving Credit Facility.

Acquisition of Marucci Sports, LLC

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

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

Acquisition of Boa Technology Inc.

On October 16, 2020, the Company, through its newly formed acquisition subsidiaries, BOA Holdings Inc., a Delaware corporation (“BOA Holdings”) and BOA Parent Inc., a Delaware corporation (“BOA Buyer”) and a wholly-owned subsidiary of BOA Holdings, acquired BOA Technology Inc. ("BOA"), and its subsidiaries pursuant to an Agreement and Plan of Merger (the “Agreement and Plan of Merger”) by and among Buyer, Reel Holding Corp., a Delaware corporation (“Reel”) and the sole stockholder of BOA Technology, Inc., BOA Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of BOA Buyer (“Merger Sub”) and Shareholder Representative Services LLC (in its capacity as the representative of the stockholders of Reel) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Reel Holding Corp., a Delaware corporation (“BOA”) and the sole stockholder of BOA Technology, Inc., BOA Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of BOA Buyer (“Merger Sub”), and Shareholder Representative Services LLC (in its capacity as the representative of the stockholders of BOA). Pursuant to the Merger Agreement, Merger Sub was merged with and into BOA (the “Merger”) such that the separate existence of Merger Sub ceased, and BOA survived the Merger as a wholly-owned subsidiary of BOA Buyer. BOA, creators of the award-winning BOA® Fit System featured in performance footwear, action sports, outdoor and medical products worldwide, was founded in 2001 and is headquartered in Denver, Colorado. The total purchase price for the acquisition of BOA was $454 million (excluding working capital and certain other adjustments upon closing, and transaction costs). The Company funded the acquisition with cash on hand and a $300 million draw on its 2018 Revolving Credit Facility. The Company's initial equity ownership in BOA is approximately 82%, as certain existing stockholders in BOA invested in the transaction alongside the Company.

Common shares - For the 2020 fiscal year we declared distributions to our common shareholders totaling $1.44 per share.

Preferred shares - For the 2020 fiscal year we declared distributions to our preferred shareholders totaling $1.8125 per share on our Series A Preferred Shares and $1.96875 on our Series B Preferred Shares and $1.96875 on our Series C Preferred Shares. We also declared a distribution to our preferred shareholders of $0.38281 per share on our Series C Preferred Shares.

2021 Outlook and Significant Trends

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

In March 2020, the World Health Organization categorized COVID-19 as a pandemic. COVID-19 continues to spread throughout the United States and other countries across the world, and the duration, severity and ultimate impact on our business are currently unknown. The COVID-19 pandemic led to governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter-in-place” and “stay-at-home” orders, travel restrictions, business curtailments, particularly retail operations and non-essential businesses, school closures, and other measures. In addition, governments and central banks in several parts of the world enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19. The public health situation, global response measures and corresponding impacts on various markets remain fluid and uncertain. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it is impacting our customers, employees, supply chains, and distribution networks. We experienced and expect to continue to experience reductions in customer demand in certain of our niche industrial end-markets. We expect that the government measures taken to address the spread of the virus, the reduced operational status of some of our suppliers, the reductions in production at certain facilities, and the decrease in foot traffic at many brick and mortar retail businesses will continue to impact our operations during 2021 while the roll out of the COVID-19 vaccine occurs. Vaccines effective in combating COVID-19 were approved by health agencies in various countries in which we operate, however initial quantities of vaccines are limited and vaccine distributions are being allocated first to those members of individual populations believed most susceptible to severe effects from COVID-19. Full administration of the COVID-19 vaccines is unlikely to occur in most jurisdictions until mid- to late-2021. The timing and shape of the COVID-19 recovery as well as the impact and extent of potential resurgences is not presently known. These and other uncertainties with respect to COVID-19 could result in changes to our current expectations in addition to a number of adverse impacts to our business.

During 2020, we worked with management at each of our businesses to reduce our controllable costs, including short-term actions to reduce labor costs, eliminating non-essential travel and reducing discretionary spending, while implementing various measures to ensure that we could continue operating during the COVID-19 pandemic. The health of our team and various stakeholders is our highest priority, and we have taken multiple steps to provide support and a safe work environment. Additionally, our businesses proactively managed working capital and we reduced our capital spending plan for the year, without deferring many key strategic ongoing initiatives.

In the past year, a number of trends affected middle market deal flow, with a slow down beginning at the end of the first quarter with the onset of the COVID-19 pandemic, followed by a sustained increase in activity in the second half of the year. The Company closed on two acquisitions in 2020, Marucci Sports in April and BOA in October, as well as an add-on acquisition at Foam Fabricators in July. The ability to source, finance and close these strategic acquisitions reflects the strength of our permanent capital model and the Company's attractive ownership and management attributes to potential sellers of middle market businesses.

Business Outlook

For 2021, the Company anticipates that COVID-19 will continue to have an impact on its results of operations, including a decrease in operating income and Adjusted EBITDA at certain of its niche industrial businesses. These niche industrial businesses will continue to experience operating constraints as their end markets are expected to be more significantly impacted by the pandemic. For example, the Company expects the Sterno Products division of Sterno to continue to be negatively impacted by the pandemic throughout 2021 due to that division's reliance on the food service industry. However, we expect the diversification of our group of businesses, particularly the continued strong performance in our consumer branded businesses, to offset the expected decline in operating results from the COVID-19 pandemic experienced by these niche industrial businesses. We expect that our outdoor consumer branded businesses, particularly, 5.11, Liberty Safe and Velocity Outdoor, and our 2020 acquisitions, Marucci Sports and BOA, will continue to build on trends experienced in the prior year, particularly the increase in consumer participation in outdoor activities.

During 2019, the Company received an aggregate total of $771.6 million in net cash proceeds as a result of the divestitures of Manitoba Harvest and Clean Earth, as well as $111.0 million from the issuance and sale of Series C Preferred Shares. In May 2020, the Company completed a share offering of five million Trust common shares resulting in net proceeds of $83.9 million and issued an additional $200 million of our 8% Senior Notes. The Company believes that it currently has adequate liquidity and capital resources to meet its existing obligations, including distributions to its shareholders, as, and if, approved by the Board of Directors, over the next twelve months. However, if the Company’s operations are impacted more than expected during 2021 as a result of the COVID-19 pandemic, the Company’s results of operations could be impacted more dramatically than currently anticipated and as a result, the Company’s liquidity and capital resources could be more constrained than expected.

The areas of focus for 2021, which are generally applicable to each of our businesses, include:

•Achieving sales growth through a combination of new product development, increasing distribution, new customer acquisitions and international expansion;

•Taking market share, where possible, in each of our niche market leading companies, generally at the expense of less well capitalized competitors;

•Striving for excellence in supply chain management, manufacturing and technological capabilities;

•Continuing to pursue expense reduction and cost savings in lower margin business lines or in response to lower production volume;

•Continuing to grow through disciplined, strategic acquisitions and rigorous integration processes; and

•Driving free cash flow through increased net income and effective working capital management, enabling continued investment in our businesses, strategic acquisitions, and distributions to our shareholders.

Results of Operations

The following discussion reflects a comparison of the historical results of operations of our consolidated business for the years ended December 31, 2020, 2019 and 2018, and components of the results of operations as well as those components presented as a percent of net revenues, for each of our businesses on a stand-alone basis.

We acquired BOA in October 2020, Marucci Sports in April 2020, Foam Fabricators in February 2018, and our Sterno business acquired Rimports in February 2018. In the following results of operations, we provide (i) our actual Consolidated Results of Operations for the years ended December 31, 2020, 2019 and 2018, which includes the historical results of operations of each of our businesses (operating segments) from the date of acquisition in accordance with generally accepted accounting principles in the United States ("GAAP" or "US GAAP") and (ii) comparative historical components of the results of operations for each of our businesses on a stand-alone basis (“Results of Operations – Our Businesses”), for each of the years ended December 31, 2020, 2019 and 2018, where all years presented include relevant pro-forma adjustments for pre-acquisition periods and explanations where applicable. For the 2020 acquisitions of Marucci Sports and BOA, the pro forma results of operations have been prepared as if we purchased these businesses on January 1, 2019. For the 2018 acquisitions of Foam Fabricators and Rimports, the pro forma results of operations have been prepared as if we purchased these businesses on January 1, 2018. We believe this presentation enhances the discussion and provides a more meaningful comparison of operating results. The following operating results of our businesses are not necessarily indicative of the results to be expected for a full year, going forward.

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

Consolidated Results of Operations — Compass Diversified Holdings

Year Ended December 31,

Asset impairment expense — 32,881 —

Loss on sale of securities — (10,193) —

Loss from continuing operations before income taxes 43,991 (26,031) (8,411)

Year ended December 31, 2020 compared to the Year ended December 31, 2019

Net revenues

Net revenues for the year ended December 31, 2020 increased by approximately $110.5 million or 7.6% compared to the corresponding period in 2019. During the year ended December 31, 2020 as compared to the year ended December 31, 2019, we saw notable sales increases at 5.11 ($12.5 million increase), Liberty ($17.0 million increase) and Velocity ($68.2 million increase) as a result of an increased consumer focus on outdoor related brands. Our Foam Fabricators business also saw an increase in net revenues of $8.6 million as a result of an add-

on acquisition that occurred in July 2020. Our Marucci business, which we acquired in April 2020, had net sales of $43.4 million during our ownership period in 2020, and our BOA business, which we acquired in October 2020, had net sales of $25.3 million during our period of ownership. These increases in net revenue were partially offset by decreases in net revenue in 2020 as compared to 2019 at our other businesses, primarily as a result of the effects of the COVID-19 pandemic, notably Ergobaby ($15.3 million decrease), Arnold ($21.0 million decrease) and Sterno ($25.5 million decrease). Refer to "Results of Operations - Our Businesses" for a more detailed analysis of net revenue by business segment.

We do not generate any revenues apart from those generated by the businesses we own. We may generate interest income on the investment of available funds, but expect such earnings to be minimal. Our investment in our businesses is typically in the form of loans from the Company to such businesses, as well as equity interests in those businesses. Cash flows coming to the Trust and the Company are the result of interest payments on those loans, amortization of those loans and, in some cases, dividends on our equity ownership. However, on a consolidated basis these items will be eliminated.

Cost of revenues

On a consolidated basis, cost of revenues increased approximately $67.2 million during the year ended December 31, 2020, compared to the corresponding period in 2019, primarily as a result of the increase in net revenues. Gross profit as a percentage of net revenues was approximately 36.1% in year ended December 31, 2020 compared to 35.8% in 2019. We recognized $5.9 million in expense related to the amortization of the inventory step-up resulting from our purchase price allocation of Marucci Sports and BOA and Foam Fabricators' acquisition of Polyfoam during the year ended December 31, 2020. Excluding the effect of the amortization of inventory step-up, gross profit as a percentage of net revenues was 36.4%. Refer to "Results of Operations - Our Businesses" for a more detailed analysis of gross profit by business segment.

Selling, general and administrative expense

Consolidated selling, general and administrative expense increased approximately $36.1 million during the year ended December 31, 2020, compared to the corresponding period in 2019. The increase in selling, general and administrative expense primarily relates to the acquisition of Marucci Sports in April 2020 and BOA in October 2020. In addition to the incremental selling, general and administrative expense incurred by these businesses subsequent to their acquisition, we incurred $4.8 million in acquisition costs and $2.1 million in integration related fees from these acquisitions in 2020. Refer to "Results of Operations - Our Businesses" for a more detailed analysis of selling, general and administrative expense by business segment. At the corporate level, general and administrative expense decreased from $14.9 million in 2019 to $14.2 million in 2020, primarily due to decreased travel costs, partially offset by costs associated with an unsuccessful acquisition.

Fees to manager

Pursuant to the Management Services Agreement, we pay CGM a quarterly management fee equal to 0.5% (2.0% annually) of our consolidated adjusted net assets. We accrue for the management fee on a quarterly basis. Concurrent with the September 2019 sale of Clean Earth, CGM agreed to waive the management fee on cash balances held at the Company, commencing with the quarter ended September 30, 2019 and continuing until the quarter during which the Company next borrowed under the 2018 Revolving Credit Facility. In March 2020, as a proactive measure to provide the Company with additional cash liquidity in light of the COVID-19 pandemic, the Company elected to draw down $200 million on our 2018 Revolving Credit Facility. The Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of March 31, 2020. Additionally, as a result of an expected decline in earnings and cash flows in the second quarter of 2020, CGM agreed to waive 50% of the management fee calculated at June 30, 2020 that was paid in July 2020. Further, for the third quarter of 2020, the Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of September 30, 2020. The result of these waivers was a decrease in the management fee during the year ended December 31, 2020 as compared to the prior year, despite the addition of the Marucci business in April 2020. CGM has also entered into a waiver of the MSA for a period through December 31, 2021 to receive a 1% annual management fee related to BOA, rather than the 2% called for under the MSA, which reduced the management fee paid for the fourth quarter of 2020.

Amortization expense

Amortization expense for the year ended December 31, 2020 increased $7.8 million to $61.9 million as compared to the prior year, primarily as a result of the acquisitions of Marucci in April 2020 and BOA in October 2020.

Impairment expense

Velocity Outdoor performed an interim impairment test of their goodwill during the quarter ended September 30, 2019 as a result of operating results below forecasts in the current period as well as a re-forecast of the Velocity business in which planned earnings and revenue fell below the forecasts of prior periods. The impairment test resulted in Velocity Outdoor recording impairment expense of $32.9 million in the prior year ended December 31, 2019.

Interest Expense

We recorded interest expense totaling $45.8 million for the year ended December 31, 2020 compared to $58.2 million for the comparable period in 2019, a decrease of $12.4 million. The decrease in interest expense for the year ended December 31, 2020 reflects the repayment of our 2018 Term Loan during 2019 using a portion of the proceeds from the sale of Clean Earth and proceeds from the issuance of preferred shares, offset by an increase in interest expense related to our issuance of an additional $200 million of our 8.000% Senior Notes in May 2020.

Income Taxes

We had income tax expense of $16.9 million with an effective income tax rate of 38.4% during the year ended December 31, 2020 compared to income tax expense of $14.7 million with an effective income tax rate of 56.6% during the same period in 2019. The effective tax rate for the years ended December 31, 2020 and 2019 includes a loss at our parent company, which is taxed as a partnership. Although we had income from continuing operations before income taxes for the year ended December 31, 2020 as compared to a loss from continuing operations for the year ended December 31, 2019 ($44.0 million income in 2020 compared to a $26.0 million loss in 2019), our income tax provision increased by only $2.2 million in 2020 as compared to 2019. The tax provision reflects the effect of state and local taxes, foreign taxes and the related allocation of income at our subsidiaries, in addition to effect of the losses at our parent company. The effective income tax rate in the prior year also reflects the effect of the impairment expense recognized at Velocity and the utilization of tax credits.

Year ended December 31, 2019 compared to the Year ended December 31, 2018

Net revenues

Net revenues for the year ended December 31, 2019 increased by approximately $92.9 million or 6.8% compared to the corresponding period in 2018. Our acquisitions of Foam Fabricators and Rimports in February 2018 contributed $11.6 million and $33.1 million, respectively, to the increase in revenue, reflecting a full year of ownership compared to the corresponding period in 2018. We also saw notable sales increases at 5.11 ($40.7 million), Liberty ($13.5 million) and Velocity ($16.5 million increase as a result of the Ravin acquisition in September 2018). These increases in revenue were partially offset by a decrease in net sales at our Sterno business exclusive of Rimports ($16.8 million decrease) in 2019 as compared to 2018. Refer to "Results of Operations - Our Businesses" for a more detailed analysis of net revenue by business segment.

Cost of revenues

On a consolidated basis, cost of revenues increased approximately $43.3 million during the year December 31, 2019, compared to the corresponding period in 2018. Our acquisitions of Foam Fabricators and Rimports in February 2018 contributed $6.9 million and $20.8 million, respectively, to the increase in cost of revenues, reflecting a full year of ownership compared to the corresponding period in 2018. We also saw notable increases in cost of sales at 5.11 ($9.9 million), Liberty ($12.1 million) and Velocity ($10.3 million) corresponding to the increase in net

sales noted above. This was partially offset by a decrease in cost of sales at our legacy Sterno business exclusive of Rimports of $16.3 million.

Gross profit as a percentage of net revenues was approximately 35.8% in year ended December 31, 2019 compared to 34.6% in 2018. Refer to "Results of Operations - Our Businesses" for a more detailed analysis of gross profit by business segment.

Selling, general and administrative expense

Consolidated selling, general and administrative expense increased approximately $15.1 million during the year ended December 31, 2019, compared to the corresponding period in 2018. Refer to "Results of Operations - Our Businesses" for a more detailed analysis of selling, general and administrative expense by business segment. At the corporate level, general and administrative expense increased from $14.3 million in 2018 to $14.9 million in 2019, primarily due to transaction costs associated with an unsuccessful acquisition.

Fees to manager

Pursuant to the Management Services Agreement, we pay CGM a quarterly management fee equal to 0.5% (2.0% annually) of our consolidated adjusted net assets. We accrue for the management fee on a quarterly basis. For the year ended December 31, 2019, we incurred approximately $37.0 million in expense for these fees compared to $43.4 million for the corresponding period in 2018. The $6.4 million decrease in the year ended December 31, 2019 is principally due to the sales of Manitoba Harvest in the first quarter of 2019 and Clean earth in the second quarter of 2019. Concurrent with the June 2019 sale of Clean Earth, CGM agree to waive the management fee on cash balances held at the Company, commencing with the quarter ended June 30, 2019 and continuing until the quarter in which the Company next borrows under the 2018 Revolving Credit Facility.

Amortization expense

Amortization expense for the year ended December 31, 2019 increased $4.5 million to $54.2 million as compared to the prior year, primarily as a result of the acquisitions of Foam Fabricators and Rimports in February 2018, and Ravin in September 2018.

Impairment expense

Interest Expense

We recorded interest expense totaling $58.2 million for the year ended December 31, 2019 compared to $55.2 million for the comparable period in 2018, an increase of $3.0 million. The increase in interest expense primarily reflects the interest associated with the issuance of our Senior Notes in April 2018. We recorded $32.0 million in interest expense for the year ended December 31, 2019 and $22.5 million in interest expense for the period from the date of issuance through December 31, 2018 related to the Senior Notes. This increase in interest expense as a result of the full year of interest associated with the Senior Notes was offset by a decrease in the average amount outstanding on our 2018 Revolving Credit Facility, which we paid off in June 2019 and did not draw on again during 2019, and the repayment of our 2018 Term Loan during the latter half of 2019.

Income Taxes

We had income tax expense of $14.7 million with an effective income tax rate of 56.6% during the year ended December 31, 2019 compared to income tax expense of $10.5 million with an effective income tax rate of 124.4% during the same period in 2018. The effective tax rate for the years ended December 31, 2019 and 2018 includes a loss at our parent company, which is taxed as a partnership. Although we had a greater loss from continuing operations before income taxes for the year ended December 31, 2019 as compared to the year ended December 31, 2018 ($26.0 million loss in 2019 and $8.4 million loss in 2018), our income tax provision increased by $4.3 million in 2019 as compared to 2018. This increase in the income tax provision was primarily a result of a decrease in the utilization of tax credits in fiscal year 2019, and the goodwill impairment related to Velocity, a portion of which was nondeductible for tax purposes. In the prior year, the effect of the recapitalization at Sterno and state income taxes as well as the geographic mix of income had a significant impact on our effective tax rate.

Results of Operations — Our Businesses

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

Branded Consumer Businesses

5.11

Overview

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

Results of Operations

Year ended December 31,

Year ended December 31, 2020 compared to the Year ended December 31, 2019

Net sales

Net sales for the year ended December 31, 2020 were $401.1 million, an increase of $12.5 million, or 3.2%, compared to the same period in 2019. This increase is due primarily to growth in e-commerce and retail sales growth of $30.2 million, or 31.2%, driven by growing demand in direct-to-consumer channels, specifically digital. Retail sales grew largely through twelve new retail store openings since December 2019 (bringing the total store count to seventy-three as of December 31, 2020) as well as the full-year impact of the sixteen stores opened in 2019. The increase in net sales for the year ended December 31, 2020 were further increased by Direct-to-Agency (“DTA”) contracts fulfilled in 2020. The increase in net sales for the year ended December 31, 2020 as compared to the prior year was offset by the effects of the COVID-19 pandemic on store traffic in our wholesale channels and our own retail stores.

Gross profit

Gross profit as a percentage of net sales increased from 49.3% in the year ended December 31, 2019 to 50.4% in the year ended December 31, 2020. Growth in gross margin was driven by channel mix as direct-to-consumer sales, which realize a higher gross margin than wholesale sales, grew versus the prior period. The growth in gross profit for the year ended December 31, 2020 as compared to the year ended December 31, 2019 was partially offset by additional inventory reserves and duty drawback accrual (increase in cost of goods sold) for audited duty drawback claims.

Selling, general and administrative expense

Selling, general and administrative expenses for the year ended December 31, 2020 increased to $162.4 million or 40.5% of net sales compared to $159.4 million or 41.0% of net sales for the year ended December 31, 2019. The decrease in selling, general and administrative expense as a percentage of net sales was driven by management’s decision to reduce variable expenses, including travel and entertainment, sales and marketing, and payroll as a response to decreased sales from the effects of the COVID-19 pandemic. The decrease was partially offset by an increase in marketing spend to drive demand in the growing direct to consumer channels and by the costs associated with additional retail stores (seventy-three open in 2020 versus sixty-one open in 2019 during the comparable period).

Income from operations

Income from operations for the year ended December 31, 2020 was $30.1 million, an increase of $7.7 million when compared to the same period in 2019, based on the factors described above.

Year ended December 31, 2019 compared to the Year ended December 31, 2018

Net sales

Net sales for the year ended December 31, 2019 were $388.6 million, an increase of $40.7 million, or 11.7%, compared to the same period in 2018. This increase is due primarily to retail and e-commerce sales growth of $39.3 million or 44%, driven by growing demand in direct to consumer channels. Retail sales grew largely due to sixteen new retail store openings since December 2018 (bringing the total store count to sixty-one as of December 31, 2019). The increase in net sales for the year ended December 31, 2019 were further increased by strong sales growth at Beyond of $7.5 million or 52%. Through the Beyond product category, 5.11 offers technical survival outerwear systems engineered for missions in extreme conditions. The increase in net sales for the year ended December 31, 2019 as compared to the prior year was offset by an $2.7 million decrease in consumer wholesale and a $1.4 million decrease in professional sales.

Gross Profit

Gross profit as a percentage of net sales increased from 46.2% in the year ended December 31, 2018 to 49.3% in the year ended December 31, 2019. The prior year cost of sales included a higher level of chargebacks incurred and discretionary discounts granted to customers while working through the backlog associated with challenges experienced while implementing a new Enterprise Resource Planning (ERP) system. Gross profit for the year ended December 31, 2019 was positively impacted by channel mix as direct to consumer sales, which realize higher gross profit than wholesale revenues, grew significantly versus the prior year.

Selling, general and administrative expense

Selling, general and administrative expenses for the year ended December 31, 2019 increased to $159.4 million or 41.0% of net sales compared to $147.1 million or 42.3% of net sales in the same period in 2018. The decrease in selling, general and administrative expense as a percentage of net sales was primarily due to the higher level of expense in the prior year associated with the move into 5.11’s new Manteca warehouse facility. The decrease in selling, general and administrative expense as a percentage of net sales was further impacted by leveraging and controlling travel expenses during fiscal year 2019. The decrease was partially offset by an increase in marketing spend to drive demand in the growing direct to consumer channels as well as performance based bonuses in fiscal year 2019.

Income (loss) from operations

Income from operations for the year ended December 31, 2019 was $22.4 million, an increase of $18.5 million when compared to the same period in 2018, based on the factors described above.

BOA

Overview

BOA Technology, creator of the revolutionary, award-winning, patented BOA Fit System, partners with market-leading brands to make the best gear even better. Delivering fit solutions purpose-built for performance, the BOA Fit System is featured in footwear across snow sports, cycling, hiking/trekking, golf, running, court sports, workwear as

well as headwear and medical bracing. The system consists of three integral parts: a micro-adjustable dial, high-tensile lightweight laces, and low friction lace guides creating a superior alternative to laces, buckles, Velcro, and other traditional closure mechanisms. Each unique BOA configuration is engineered for fast, effortless, precision fit, and is backed by The BOA Lifetime Guarantee. BOA is headquartered in Denver, Colorado and has offices in Austria, Greater China, South Korea, and Japan.

Results of Operations

In the following results of operations, we provide comparative pro forma results of operations for BOA for the years ended December 31, 2020 and 2019 as if we had acquired the business on January 1, 2019. The results of operations that follow include relevant pro-forma adjustments for pre-acquisition periods and explanations where applicable. The operating results for BOA have been included in the consolidated results of operation from the date of acquisition through December 31, 2020.

Year ended December 31,

(in thousands) (Pro forma) (Pro forma)

Pro forma financial information for BOA for the year ended December 31, 2020 and December 31, 2019 includes pre-acquisition results of operations for the period from January 1, 2020 through October 16, 2020, the acquisition date of BOA, and January 1, 2019 through December 31, 2019, for comparative purposes. The historical results of BOA have been adjusted to reflect the purchase accounting adjustments recorded in connection with the acquisition. Pro forma results of operations include the following pro forma adjustments as if we had acquired BOA January 1, 2019:

•Depreciation expense associated with the increase in depreciable lives of capital assets of $0.1 million for the year ended December 31, 2019.

•Amortization expense associated with the intangible assets recorded in connection with the purchase price allocation for BOA of $11.9 million for the year ended December 31, 2020, and $15.0 million for the year ended December 31, 2019.

•Management fees that would have been payable to the Manager during each period.

Pro Forma Year ended December 31, 2020 compared to the Pro Forma Year ended December 31, 2019

Net sales

Net sales for the year ended December 31, 2020 were $106.4 million, an increase of $0.1 million or 0.1% when compared to net sales of $106.3 million for the year ended December 31, 2019.

Gross profit

Gross profit as a percentage of net sales was 59.1% for the year ended December 31, 2020 compared to 58.0% for the same period in 2019. The cost of sales for the year ended December 31, 2020 includes $1.5 million related to the amortization of inventory step-up resulting from the acquisition purchase price allocation. Excluding the effect of the inventory step-up, the gross profit as a percentage of net sales for the year ended December 31, 2020 was 60.5%. The increase in gross profit as a percentage of net sales during the current year is attributable primarily to product mix.

Selling, general and administrative expense

Selling, general and administrative expense for the year ended December 31, 2020 was $40.8 million, an increase of $1.7 million as compared to selling, general and administrative expense of $39.2 million for the year ended December 31, 2019. Selling, general and administrative expense for the year ended December 31, 2020 included $2.5 million in transaction costs related to the acquisition of BOA, and $1.1 million in integration services fees paid to CGM. Excluding these nonrecurring costs, selling, general and administrative expense for the year ended December 31, 2020 was approximately $37.2 million, a decrease of $2.0 million compared to the year ended

December 31, 2019. This decrease was primarily attributable to a reduction in marketing activity and a reduced level of travel during 2020.

Income from operations

Income from operations was $5.8 million for the year ended December 31, 2020 as compared to $6.3 million in income from operations in the year ended December 31, 2019, a decrease of $0.5 million based on the factors noted above.

Ergobaby

Overview

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

Results of Operations

Year ended December 31,

Year ended December 31, 2020 compared to the Year ended December 31, 2019

Net sales

Net sales for the year ended December 31, 2020 were $74.7 million, a decrease of $15.3 million or 17.0% compared to the same period in 2019. During the year ended December 31, 2020, international sales were approximately $48.1 million, representing a decrease of $13.9 million over the corresponding period in 2019 primarily as a result of reduced sales volume at Ergobaby's Asia-Pacific and EMEA distributors as a result of the COVID-19 pandemic. Domestic sales were $26.7 million during the year ended December 31, 2020, reflecting a decrease of $1.4 million compared to the corresponding period in 2019. The decrease in domestic sales was driven by the Tula brand, primarily in the specialty account channel.

Gross profit

Gross profit as a percentage of net sales was 66.0% for the year ended December 31, 2020 compared to 63.4% for the same period in 2019. The increase in gross profit as a percentage of net sales was due to the mix of sales channels, mix of products sold, as well as reduced freight costs and warranty expense during the year ended December 31, 2020.

Selling, general and administrative expense

Selling, general and administrative expense for the year ended December 31, 2020 decreased to approximately $36.3 million or 48.6% of net sales compared to $38.9 million or 43.2% of net sales for the same period of 2019. The decrease in selling, general and administrative expense for the year ended December 31, 2020 as compared to the year ended December 31, 2019 is a result of decreases in variable expenses in response to the COVID-19 pandemic and non-recurring expenses in the prior year.

Income from operations

Income from operations for the year ended December 31, 2020 decreased $5.2 million, to $5.2 million, compared to $10.4 million for the same period of 2019, primarily as a result of the factors described above.

Year ended December 31, 2019 compared to the Year ended December 31, 2018

Net sales

Net sales for the year ended December 31, 2019 were $90.0 million, a decrease of $0.6 million or 0.6% compared to the same period in 2018. During the year ended December 31, 2019, international sales were approximately $62.0 million, representing an increase of $4.0 million over the corresponding period in 2018. Domestic sales were $28.0 million during the year ended December 31, 2019, reflecting a decrease of $4.6 million compared to the corresponding period in 2018. The decrease in domestic sales was primarily the result of declines in both the Ergobaby and Tula brands.

Gross Profit

Gross profit as a percentage of net sales was 63.4% for the year ended December 31, 2019 compared to 65.9% for the same period in 2018. The decrease in gross profit as a percentage of net sales in the year ended December 31, 2019 compared to the year ended December 31, 2018 was due to changes in product mix from higher margin channels to lower margin channels.

Selling, general and administrative expense

Selling, general and administrative expense for the year ended December 31, 2019 decreased to approximately $38.9 million or 43.2% of net sales compared to $40.2 million or 44.4% of net sales for the same period of 2018. The decrease in selling, general and administrative expense for the year ended December 31, 2019 as compared to the year ended December 31, 2018 is due to lower variable expenses related to sales, reduction in headcount, reduction in marketing spend and reduced travel in 2019. This was partially offset by additional legal fees incurred during 2019.

Income from operations

Income from operations for the year ended December 31, 2019 decreased $1.1 million, to $10.4 million, compared to $11.5 million for the same period of 2018, primarily as a result of the factors described above.

Liberty Safe

Overview

Founded in 1988 and based in Payson, Utah, Liberty Safe is the premier designer, manufacturer and marketer of home and gun safes in North America. From its over 300,000 square foot manufacturing facility, Liberty Safe produces a wide range of home and gun safe models in a broad assortment of sizes, features and styles ranging from an entry level product to good, better and best products. Products are marketed under the Liberty brand, as well as a portfolio of licensed and private label brands, including Cabela’s and John Deere. Liberty Safe’s products are the market share leader and are sold through an independent dealer network ("Dealer sales") in addition to various sporting goods, farm and fleet and home improvement retail outlets ("Non-Dealer sales"). Liberty has the largest independent dealer network in the industry.

Results of Operations

Year ended December 31,

Year ended December 31, 2020 compared to the Year ended December 31, 2019

Net sales

Net sales for the year ended December 31, 2020 increased approximately $17.0 million or 17.6%, to $113.1 million, compared to the corresponding year ended December 31, 2019. Non-Dealer sales were approximately $54.3 million in 2020 compared to $45.8 million in 2019, representing an increase of $8.5 million or 18.6%. The increase in Non-Dealer sales was attributable to a new customer in the Farm and Fleet channel in the latter half of 2019 as well as increased sales at sporting goods retailers during 2020, despite the shutdown of retail stores resulting from stay at home orders issued by local governments. Dealer sales totaled approximately $58.8 million in the year ended December 31, 2020 compared to $50.4 million in the same period in 2019, representing an increase of $8.4 million or 16.7%. The increase in Dealer sales reflects higher demand for safes driven by an expanding addressable customer base, increased knowledge of the benefits of secure valuables storage, increasing civil and political unrest, and more frequent severe weather events. Liberty Safe’s sales backlog was approximately $14.5 million at December 31, 2020 compared to approximately $5.7 million at December 31, 2019.

Gross profit

Gross profit as a percentage of net sales totaled approximately 25.6% in the year ended December 31, 2020 compared to 21.8% in the year ended December 31, 2019. The increase in gross profit as a percentage of sales during the year ended December 31, 2020 compared to the same period in 2019 is primarily attributable to favorable manufacturing variances as a result of increased production volume, customer-specific margin enhancement initiatives, and a decrease in certain material costs in 2020 compared to 2019.

Selling, general and administrative expense

Selling, general and administrative expense for the year ended December 31, 2020 decreased to approximately $11.7 million or 10.3% of net sales compared to $12.0 million or 12.4% of net sales for the same period of 2019. The $0.3 million decrease in selling, general and administrative expense despite the increase in net sales is primarily attributable to decreased advertising expense in 2020 as well as lower variable costs resulting from the increase in sales.

Income from operations

Income from operations increased $8.3 million during the year ended December 31, 2020 to $16.8 million compared to income from operations of $8.5 million during the same period in 2019, principally as a result of the increase in sales and gross profit in 2020, as described above.

Year ended December 31, 2019 compared to the Year ended December 31, 2018

Net sales

Net sales for the year ended December 31, 2019 increased approximately $13.5 million or 16.3%, to $96.2 million, compared to the corresponding period ended December 31, 2018. Non-Dealer sales were approximately $45.8 million in 2019 compared to $32.9 million in 2018, representing an increase of $12.8 million or 38.9%. The increase in Non-Dealer sales was primarily due to the addition of a new customer in the Farm and Fleet channel in the year ended December 31, 2019. Dealer sales totaled approximately $50.4 million in the year ended December 31, 2019 compared to $49.7 million in the same period in 2018, representing an increase of $0.6 million or 1.2%. Liberty Safe’s sales backlog was approximately $5.7 million at December 31, 2019 compared to approximately $6.0 million at December 31, 2018.

Gross Profit

Gross profit as a percentage of net sales totaled approximately 21.8% in the year ended December 31, 2019 compared to 23.8% in the year ended December 31, 2018. The decrease in gross profit as a percentage of sales during the year ended December 31, 2019 compared to the same period in 2018 is attributable primarily to increased raw material costs in the first half of the year as well as changes in freight costs for certain customers in fiscal year 2019 which has decreased margins for these customers.

Selling, general and administrative expense

Selling, general and administrative expense for the year ended December 31, 2019 decreased to approximately $12.0 million or 12.4% of net sales compared to $13.2 million or 15.9% of net sales for the same period of 2018.

The $1.2 million decrease is primarily attributable to a planned reduction in advertising expense as Liberty refocused its ad spending from national radio and print advertising to digital media, and a reduction in co-op advertising allowances for certain national retailers.

Income from operations

Income from operations increased $2.6 million during the year ended December 31, 2019 to $8.5 million compared to income from operations of $5.9 million during the same period in 2018, principally as a result of the increase in sales and gross profit in 2019, as described above.

Marucci Sports

Overview

Founded in 2009 and headquartered in Baton Rouge, Louisiana, Marucci is a leading designer, manufacturer, and marketer of premium wood and metal baseball bats, fielding gloves, batting gloves, bags, protective gear, sunglasses, on and off-field apparel, and other baseball and softball equipment used by professional and amateur athletes. Marucci also develops and licenses franchises for sports training facilities. Marucci products are available through owned websites, their team sales organization, Big Box Retailers, and third party e-commerce & resellers.

Results of Operations

In the following results of operations, we provide comparative pro forma results of operations for Marucci for the years ended December 31, 2020 and 2019 as if we had acquired the business on January 1, 2019. The results of operations that follows include relevant pro-forma adjustments for pre-acquisition periods and explanations where applicable. The operating results for Marucci have been included in the consolidated results of operation from the date of acquisition through December 31, 2020.

Year ended December 31,

(in thousands) (Pro forma) (Pro forma)

Pro forma financial information for Marucci for the year ended December 31, 2020 and December 31, 2019 includes pre-acquisition results of operations for the period from January 1, 2020 through April 20, 2020, the acquisition date of Marucci, and January 1, 2019 through December 31, 2019, for comparative purposes. The historical results of Marucci have been adjusted to reflect the purchase accounting adjustments recorded in connection with the acquisition. Pro forma results of operations include the following pro forma adjustments as if we had acquired Marucci January 1, 2019:

•Depreciation expense associated with the increase in depreciable lives of capital assets of $0.2 million for the year ended December 31, 2020, and $0.8 million for the year ended December 31, 2019.

•Amortization expense associated with the intangible assets recorded in connection with the purchase price allocation for Marucci of $1.2 million for the year ended December 31, 2020, and $4.1 million for the year ended December 31, 2019.

•Management fees that would have been payable to the Manager during each period.

Pro Forma Year ended December 31, 2020 compared to the Pro Forma Year ended December 31, 2019

Net sales

Net sales for the year ended December 31, 2020 were $65.9 million, a decrease of $0.6 million as compared to net sales of $66.5 million for the year ended December 31, 2019. During 2020, Marucci was affected by the economic slowdown resulting from the COVID-19 pandemic with baseball and softball seasons postponed in the spring and early summer throughout much of the United States. Marucci's “brick and mortar” retail partners were forced to close as a result of the pandemic thus Marucci did not receive fill-in orders during this period. As a result, sales of aluminum and wood bats were significantly less in the first and second quarter of 2020 when compared to the same

period last year. Additionally, Major League Baseball postponed the beginning of their season eliminating the need for wood bats to be purchased for the professional season. During June 2020, Marucci began to see demand pick up as the baseball and softball seasons began and in August 2020, the company launched its CAT9 line of aluminum and composite bats.With the success of this launch, the demand pickup continued through the remainder of 2020.

Gross profit

Gross profit for the year ended December 31, 2020 decreased $2.1 million as compared to the year ended December 31, 2019. Gross profit as a percentage of sales was 51.2% for the year ended December 31, 2020 as compared to 53.9% for the year ended December 31, 2019. The cost of sales for the year ended December 31, 2020 includes $4.3 million related to the amortization of inventory step-up resulting from the acquisition purchase price allocation. Excluding the effect of the inventory step-up, the gross profit as a percentage of net sales for the year ended December 31, 2020 was 57.7%. The increase in gross profit as a percentage of net sales was attributable to an increase in retail sales price of Marucci's aluminum bats, specifically the CAT9, increased e-commerce sales resulting from the closure of retail brick and mortar stores at various times during 2020, and greater operating efficiencies resulting from Marucci's consolidation of its wood mills during the latter part of 2019.

Selling, general and administrative expense

Selling, general and administrative expense for the year ended December 31, 2020 was $30.5 million, or 46.2% of net sales compared to $30.9 million, or 46.5% of net sales for the year ended December 31, 2019. Selling, general and administrative expense for the year ended December 31, 2020 includes $2.0 million in acquisition related costs that were expensed at the close of the Marucci acquisition, and $1.0 million in integration service fees paid to CGM. Excluding the effect of the acquisition costs and integration service fees, selling, general and administrative expense for the year ended December 30, 2020 was $27.5 million, with the decrease in expense attributable to reductions in travel and entertainment as a result of the COVID-19 pandemic, a reduction in royalty fees related to the acquisition in 2019 of a technology used with Marucci's aluminum bats, and a decrease in commission expense due to bringing the Marucci's sales team in-house.

Loss from operations

Loss from operations for the year ended December 31, 2020 was $3.9 million compared to loss from operations of $0.6 million for the same period in 2019, primarily as a result of the factors noted above.

Velocity Outdoor

Overview

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

Results of Operations

Year ended December 31,

Impairment expense $ — — % $ 32,881 22.2 % $ — — %

Year ended December 31, 2020 compared to the Year ended December 31, 2019

Net sales

Net sales for the year ended December 31, 2020 were $216.0 million compared to net sales of $147.8 million for the year ended December 31, 2019, an increase of $68.2 million or 46.1%. The increase in net sales during the year ended December 31, 2020 is due to a significant increase in customer demand that we have experienced in the current year reflecting consumer focus on outdoor branded products, as well as the introduction of several new products during 2020.

Gross profit

Gross profit as a percentage of net sales was 30.9% for the year ended December 31, 2020 as compared to 27.5% in the year December 31, 2019. The increase in gross profit as a percentage of net sales was primarily attributable to product and customer mix.

Selling general and administrative expense

Selling, general and administrative expense for the year ended December 31, 2020 was $32.3 million, or 14.9% of net sales compared to $25.3 million, or 17.1% of net sales, for the year ended December 31, 2019. The increase in selling, general and administrative expense is primarily related to volume driven expenses that correlate to the increase in sales, as well as additional investments in marketing.

Income (loss) from operations

Income from operations for the year ended December 31, 2020 was $24.9 million, an increase of $52.1 million when compared to loss from operations of $27.1 million for the comparable period in 2019. Velocity recognized impairment expense of $32.9 million in 2019 after determining that interim impairment testing was necessary in the prior year. The increase in operating income in the year ended December 31, 2020 reflects the factors noted above, and the effect of the impairment expense on the operating income in 2019.

Year ended December 31, 2019 compared to the Year ended December 31, 2018

Net sales

Net sales for the year ended December 31, 2019 were $147.8 million compared to net sales of $131.3 million for the year ended December 31, 2018, an increase of $16.5 million or 12.6%. The increase in net sales for the year ended December 31, 2019 is primarily due to add-on acquisition of Ravin Crossbows in September 2018, partially offset by sales associated with the non-recurring Junior Reserves Officer Training Corps (JROTC) contract that shipped in the first half of 2018. Ravin had net sales of $43.0 million in the year ended December 31, 2019, representing a full year of ownership, compared to $12.7 million in the year ended December 31, 2018.

Gross Profit

Gross profit as a percentage of net sales was 27.5% for the year ended December 31, 2019 as compared to 26.2% in the year December 31, 2018. Cost of sales for the year ended December 31, 2018 included $2.5 million in expense related to the inventory step-up resulting from the purchase price allocation for Ravin. Excluding the effect of the inventory step-up, gross profit as a percentage of net sales was 28.1% for the year ended December 31, 2018. The decrease in gross profit as a percentage of sales in the year ended December 31, 2019 as compared to

100

the year ended December 3, 2018 was primarily due to mix within the archery product line as well as the gross margin impact from the 2018 of the JROTC contract.

Selling general and administrative expense

Selling, general and administrative expense for the year ended December 31, 2019 was $25.3 million, or 17.1% of net sales compared to $22.8 million, or 17.3% of net sales, for the year ended December 31, 2018. The selling, general and administrative expense for the year ended December 31, 2018 included $1.3 million in acquisition costs related to our acquisition of Ravin in September 2018 while fiscal year 2019 had higher expenses associated with the full year impact of the Ravin acquisition, as well as an increase in the fair value of the Ravin earn-out of $2.0 million that was recorded in the fourth quarter of 2019.

Impairment expense

As a result of operating results below forecasts in the current period as well as a re-forecast of the Velocity business in which planned earnings and revenue fell below the forecasts of prior periods, Velocity performed an interim impairment test of their goodwill during the quarter ended September 30, 2019, which resulted in the recording of impairment expense of $32.9 million.

(Loss) income from operations

Loss from operations for the year ended December 31, 2019 was $27.1 million, a decrease of $32.0 million when compared to income from operations of $4.9 million for the comparable period in 2018, primarily as a result of the impairment expense recognized during the third quarter of 2019.

Niche Industrial Businesses

Advanced Circuits

Overview

Advanced Circuits is a provider of small-run, quick-turn and volume production (including assembly) PCBs to customers throughout the United States. Historically, small-run and quick-turn PCBs have represented approximately 50% to 54% of Advanced Circuits’ gross revenues. Small-run and quick-turn PCBs typically command higher margins than volume production PCBs given that customers require high levels of responsiveness, technical support and timely delivery of small-run and quick-turn PCBs and are willing to pay a premium for them. Advanced Circuits is able to meet its customers’ demands by manufacturing custom PCBs in as little as 24 hours, while maintaining over 98.0% error-free production rates and real-time customer service and product tracking 24 hours per day.

Results of Operations

Year Ended December 31,

Year ended December 31, 2020 compared to the Year ended December 31, 2019

Net sales

Net sales for the year ended December 31, 2020 were approximately $88.1 million compared to approximately $90.8 million for the same period in 2019, a decrease of approximately $2.7 million or 3.0%. The decrease in net sales was due to decreased sales in Long-Lead Time by approximately $1.5 million, Assembly by approximately $1.6 million, and Quick-Turn Small-Run by approximately $1.0 million. This was partially offset by a reduction in promotional allowances $0.8 million, and increases in Subcontract by approximately $0.3 million, and Quick-Turn Production by approximately $0.2 million. Quick-Turn Production represented approximately 33.4% of gross sales, Long-Lead Time/Other comprised approximately 33.2% of gross sales and Quick-Turn Small-Run comprised

101

approximately 18.2% of gross sales for the year ended December 31, 2020. Quick-Turn Production represented approximately 32.0% of gross sales, Long-Lead Time/Other comprised approximately 33.5% of gross sales and Quick-Turn Small-Run comprised approximately 18.6% of gross sales for the year ended December 30, 2019.

Gross profit

Gross profit as a percentage of net sales decreased 160 basis points during the year ended December 31, 2020 (44.1% in 2020 compared to 45.7% in 2019) primarily as a result of sales mix.

Selling, general and administrative expense

Selling, general and administrative expenses were approximately $15.2 million in the year ended December 31, 2020 as compared to $14.8 million in the year ended December 31, 2019, an increase of approximately $0.4 million. The increase in selling, general and administrative expense is primarily due to sales and production management added in 2020. Selling, general and administrative expenses represented 17.3% of net sales for the year ended December 31, 2020 and 16.3% of net sales for the year ended December 31, 2019.

Income from operations

Income from operations for the year ended December 31, 2020 was approximately $22.9 million compared to $25.7 million in the same period in 2019, a decrease of approximately $2.8 million, as a result of the factors described above.

Year ended December 31, 2019 compared to the Year ended December 31, 2018

Net sales

Net sales for the year ended December 31, 2019 were approximately $90.8 million compared to approximately $92.5 million for the same period in 2018, a decrease of approximately $1.7 million or 1.9%. The decrease in net sales was due primarily to a facility move at ACI's Arizona location that halted production for a portion of September 2019 and led to a decrease in sales in the third quarter of 2019. Net sales decreased in Quick-Turn Production by approximately $2.1 million, Quick-Turn Small-Run by approximately $0.9 million, Assembly by approximately $0.5 million, and Subcontract by $0.1 million during the year ending December 31, 2019 as compared to the prior year. This was partially offset by increases in Long-Lead Time/Other of approximately $0.3 million, and decreases in promotions of approximately $1.6 million. On a consolidated basis at ACI, Quick-Turn Small-Run PCBs comprised approximately 18.6% of gross sales and Quick-Turn Production PCBs represented approximately 32.0% of gross sales for the year ended December 31, 2019. Quick-Turn Small-Run PCBs comprised approximately 18.9% of gross sales and Quick-Turn Production PCBs represented approximately 33.0% of gross sales for the year ended December 31, 2018.

Gross profit

Gross profit as a percentage of net sales decreased 100 basis points during the year ended December 31, 2019 (45.7% in 2019 compared to 46.7% in 2018) primarily as a result of sales mix.

Selling, general and administrative expense

Selling, general and administrative expenses were approximately $14.8 million in the year ended December 31, 2019 as compared to $15.1 million in the year ended December 31, 2018, a decrease of approximately $0.3 million. The decrease in selling, general and administrative expense is primarily due to decreased commissions paid in fiscal year 2019 as a result of the decrease in sales. Selling, general and administrative expenses represented 16.3% of net sales for both the year ended December 31, 2019 and the year ended December 31, 2018.

Income from operations

Income from operations for the year ended December 31, 2019 was approximately $25.7 million compared to $26.3 million in the same period in 2018, a decrease of approximately $0.7 million, as a result of the factors described above.

Arnold

Overview

Headquartered in Rochester, New York, Arnold serves a variety of markets including aerospace and defense,

102

general industrial, motorsport/ automotive, oil and gas, medical, energy, reprographics and advertising specialties. Over the course of more than 100 years, Arnold has successfully evolved and adapted our products, technologies, and manufacturing presence to meet the demands of current and emerging markets. Arnold produces high performance permanent magnets (PMAG), precision foil products (Precision Thin Metals or "PTM"), and flexible magnets (FlexmagTM) that are mission critical in motors, generators, sensors and other systems and components. Arnold has expanded globally and built strong relationships with our customers worldwide. Arnold is the largest and, we believe, the most technically advanced U.S. manufacturer of engineered magnetic systems. Arnold supports future growth of these business units through its Technology Center located in Madison, Wisconsin.

Results of Operations

Year ended December 31,

Year ended December 31, 2020 compared to the Year ended December 31, 2019

Net sales

Net sales for the year ended December 31, 2020 were approximately $99.0 million, a decrease of $21.0 million compared to the same period in 2019. The decrease in net sales is primarily a result of softness in the commercial aerospace, oil and gas and advertising specialty markets caused by the global COVID-19 pandemic. International sales were $37.9 million and $47.4 million for the years ended December 31, 2020 and 2019, respectively, a decrease of $9.5 million.

Gross profit

Gross profit was $23.5 million for the year ended December 31, 2020 as compared to $31.2 million for the same period in 2019. Gross profit as a percentage of net sales decreased to 23.8% in 2020 from 26.0% in 2019, principally due to the lower volume in the markets as noted above, partially offset by improved operating efficiencies.

Selling, general and administrative expense

Selling, general and administrative expense in the year ended December 31, 2020 was $17.7 million as compared to approximately $19.1 million for the year ended December 31, 2019. The decrease in selling, general and administrative expense was due to lower staffing related costs and lower travel and meeting expenses. Selling, general and administrative expense represented 17.9% of net sales for the year ended December 31, 2020 as compared to 15.9% for the same period in 2019. The increase in selling, general and administrative expense as a percentage of net sales was due to overall lower sales volume.

Income from operations

Arnold had income from operations of approximately $2.1 million for the year ended December 31, 2020, as compared to income from operations of $8.4 million for the year ended December 31, 2019, a decrease of $6.3 million year over year based on the factors stated above.

103

Year ended December 31, 2019 compared to the Year ended December 31, 2018

Net sales

Net sales for the year ended December 31, 2019 were approximately $119.9 million, an increase of $2.1 million compared to the same period in 2018. The increase in net sales is primarily a result of increased demand across various product sectors and markets. PMAG sales represented 72% of net sales in the year ended December 31, 2019 and 74% of net sales in the year ended December 31, 2018. International sales were $47.4 million and $47.8 million for the years ended December 31, 2019 and 2018, respectively, a decrease of $0.5 million, primarily as a result of lower sales at PMAG.

Gross Profit

Gross profit was $31.2 million for the year ended December 31, 2019 as compared to $30.4 million for the same period in 2018. Gross profit as a percentage of net sales increased to 26.0% in 2019 from 25.8% in 2018. The increase is principally attributable to an increase in sales volume and manufacturing efficiencies.

Selling, general and administrative expense

Selling, general and administrative expense in the year ended December 31, 2019 was $19.1 million as compared to approximately $19.0 million for the year ended December 31, 2018. Selling, general and administrative expense represented 15.9% of net sales for the year ended December 31, 2019 as compared to 16.2% for the same period in 2018. The decrease in selling, general and administrative expense as a percentage of net sales was driven by increased sales volume.

Income from operations

Arnold had income from operations of approximately $8.4 million for the year ended December 31, 2019, as compared to income from operations of $7.4 million for the year ended December 31, 2018, an increase of $0.9 million year over year based on the factors stated above.

Foam Fabricators

Overview

Founded in 1957 and headquartered in Scottsdale, Arizona, Foam Fabricators is a designer and manufacturer of custom molded protective foam solutions and original equipment manufacturer (OEM) components made from expanded polystyrene (EPS) and expanded polypropylene (EPP). Foam Fabricators operates 13 molding and fabricating facilities across North America and provides products to a variety of end-markets, including appliances and electronics, pharmaceuticals, health and wellness, automotive, building products and others.

Results of Operations

Foam Fabricators was acquired in February 2018. In the following results of operations, we provide comparative results of operations for Foam Fabricators for the year ended December 31, 2018 as if we had acquired the business on January 1, 2018, including relevant pro forma adjustments for pre-acquisition periods and explanations where applicable.

Year ended December 31,

(in thousands) (Pro forma)

Pro forma financial information for Foam Fabricators for the year ended December 31, 2018 includes pre-acquisition results of operations for the period from January 1, 2018 through February 15, 2018, the acquisition date of Foam Fabricators, for comparative purposes. The historical results of Foam Fabricators for the period from January 1, 2018 through February 15, 2018 have been adjusted to reflect the purchase accounting adjustments recorded in connection with the acquisition. The historical results of Foam Fabricators for the period from January 1, 2018 through February 15, 2018 have been adjusted to reflect $0.2 million in stock compensation expense,

104

$0.1 million in depreciation 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.

Year ended December 31, 2020 compared to the Year ended December 31, 2019

Net sales

Net sales for the year ended December 31, 2020 were $130.0 million, an increase of $8.6 million, or 7.1%, compared to the year ended December 31, 2019. The increase in net sales during the year was primarily due to the acquisition of Polyfoam in July 2020, partially offset by a slow-down in the appliance and automotive customer sectors, as well as a general slow-down across other customer segments in April and May, as a result of the effect of the COVID-19 pandemic on our customers' operations. While most of our customer sectors saw improved performance beginning in June, the appliance and automotive sectors continued to see a slowdown in sales through the end of the second quarter. During the latter half of 2020, appliance sales continued to trend lower versus the prior year due to lower demand and supply chain and labor constraints resulting from the COVID-19 pandemic.

Gross profit

Gross profit as a percentage of net sales was 30.3% and 28.3%, respectively, for the years ended December 31, 2020 and 2019. The increase in gross profit as a percentage of net sales in the year ended December 31, 2020 was primarily due to the decreasing price of expanded polystyrene ("EPS") resin. A majority of Foam Fabricator's products are made with EPS resin, an oil and natural gas derived polymer with an added expansion agent, therefore raw material costs will fluctuate based on the price of oil and natural gas.

Selling, general and administrative expense

Selling, general and administrative expense for the year ended December 31, 2020 was $14.4 million as compared to $11.1 million for the year ended December 31, 2019, an increase of $3.3 million. The increase in selling, general and administrative expense for the year ended December 31, 2020 is primarily attributable to the acquisition of Polyfoam in the third quarter of 2020 and an increase in performance based compensation versus the prior year.

Income from operations

Income from operations was $15.9 million for the year ended December 31, 2020 as compared to $14.3 million for the year ended December 31, 2019, an increase of $1.6 million based on the factors noted above.

Year ended December 31, 2019 compared to the Pro Forma Year ended December 31, 2018

Net sales

Net sales for the year ended December 31, 2019 were $121.4 million, a decrease of $7.0 million, or 5.5%, compared to the year ended December 31, 2018. The decrease in net sales was due to a nonrecurring customer from fiscal year 2018 as well as a decrease in sales in the automotive and protective packing categories in fiscal year 2019.

Gross profit

Gross profit as a percentage of net sales was 28.3% and 27.1%, respectively, for the years ended December 31, 2019 and 2018. The cost of sales for the year ended December 31, 2018 includes $0.7 million related to the inventory step-up resulting from the acquisition purchase price allocation. Excluding the effect of the inventory step-up, the gross profit as a percentage of net sales for the year ended December 31, 2018 was 27.6%. The increase in gross profit as a percentage of net sales in the year ended December 31, 2019 was primarily due to decreases in raw material costs during fiscal year 2019.

Selling, general and administrative expense

Selling, general and administrative expense for the year ended December 31, 2019 was $11.1 million as compared to $14.0 million for the year ended December 31, 2018, a decrease of $2.9 million. Selling, general and administrative expense for the year ended December 31, 2018 included $1.7 million in incremental integration service fees paid to CGM and $1.5 million in transaction costs paid in relation to the acquisition of Foam Fabricators. Excluding the integration fees and transaction costs, selling, general and administrative expense for the year ended December 31, 2019 was $0.3 million higher than the comparable period in the prior year due to additional accounts receivable reserves and transaction costs associated with acquisition diligence expense, offset

105

by non-recurring compensation and other costs from fiscal year 2018 associated with the previous owner of Foam Fabricators prior to the acquisition in February 2018.

Income from operations

Income from operations was $14.3 million for the year ended December 31, 2019 as compared to $12.2 million for the year ended December 31, 2018, an increase of $2.1 million based on the factors noted above.

Sterno

Overview

Sterno is a manufacturer and marketer of portable food warming fuel and creative ambience solutions for the hospitality and consumer markets. Sterno offers a broad range of wick and gel chafing fuels, butane stoves and accessories, liquid and traditional wax candles, catering equipment and lamps through their Sterno Products division. In January 2016, Sterno acquired Northern International, Inc. ("Sterno Home"), which sells flameless candles and outdoor lighting products through the retail segment, and in February 2018 Sterno acquired Rimports, which is a manufacturer and distributor of branded and private label scented wax cubes and warmer products used for home decor and fragrance systems.

Results of Operations

The table below summarizes the results of operations for Sterno for the fiscal years ended December 31, 2020, 2019 and 2018. The historical operating results of Rimports have been added to the Sterno results of operations for the 2018 period prior to acquisition by Sterno, as if Sterno had acquired Rimports on January 1, 2018, including relevant pro forma adjustments for pre-acquisition periods and explanations where applicable.

Year ended December 31,

Pro Forma

Pro forma financial information for Sterno for the year ended December 31, 2018 includes pre-acquisition results of operations of Rimports for the period from January 1, 2018 through February 28, 2018, the acquisition date of Rimports, for comparative purposes. The historical results of Sterno for the period from January 1, 2018 through February 28, 2018 have been adjusted to reflect the purchase accounting adjustments recorded in connection with the acquisition. The historical results of Sterno for the period from January 1, 2018 through February 28, 2018 have been adjusted to reflect $0.1 million in depreciation expense, and $1.6 million in amortization expense.

Year ended December 31, 2020 compared to the Year ended December 31, 2019

Net sales

Net sales for the year ended December 31, 2020 were approximately $370.0 million, a decrease of $25.5 million or 6.4% compared to net sales for the year ended December 31, 2019. The net sales variance reflects a decrease in sales at Sterno Products and Sterno Home as a result of the effect of COVID-19 on the food service and retail industries beginning in the latter half of March, partially offset by favorable sales volume at Rimports of wax and essential oils during 2020. We expect the food service industry to continue to be negatively impacted by the COVID-19 pandemic throughout 2021.

Gross profit

Gross profit as a percentage of net sales decreased from 25.8% for the year ended December 31, 2019 to 21.1% for the same period ended December 31, 2020. The decrease in gross profit as a percentage of net sales during 2020 as compared to 2019 was attributable to product mix, with lower margin sales in 2020, as well as higher freight and tariff costs.

106

Selling, general and administrative expense

Selling, general and administrative expense for the year ended December 31, 2020 was approximately $34.9 million as compared to $39.7 million in the year ended December 31, 2019, a decrease of $4.8 million or 12.1%, reflecting lower salaries, commissions, and various cost savings initiatives implemented to address the effects of decreased demand from COVID-19.

Income from operations

Income from operations for the year ended December 31, 2020 was approximately $25.8 million, a decrease of $19.0 million when compared to the same period in 2019, based on the factors noted above.

Year ended December 31, 2019 compared to the Pro Forma Year ended December 31, 2018

Net sales

Net sales for the year ended December 31, 2019 were approximately $395.4 million, a decrease of $10.4 million or 2.6% compared to the pro forma net sales for the year ended December 31, 2018. The net sales variance reflects a decrease in sales of outdoor lighting products at Sterno Home primarily as a result of inclement weather during the spring period in the domestic market and a higher level of rebates and chargebacks compared to the prior year, offset by an increase in sales volume at Rimports.

Gross Profit

Gross profit as a percentage of net sales increased from 24.0% for the year ended December 31, 2018 to 25.8% for the same period ended December 31, 2019. Sterno recognized $4.6 million in cost of goods sold in the second quarter of 2018 and $2.0 million in the third quarter of 2018 related to the amortization of the inventory step-up resulting from the purchase price allocation of the Rimports acquisition. After eliminating the effect of the inventory step-up, gross profit as a percentage of net sales was 25.6% for the year ended December 31, 2018. The gross profit percentage was relatively flat year over year, reflecting favorable pricing and chemical costs offset by higher metal costs, and start up costs related to new products at Rimports.

Selling, general and administrative expense

Selling, general and administrative expense for the year ended December 31, 2019 was approximately $39.7 million as compared to $37.1 million in the year ended December 31, 2018, an increase of $2.6 million or 7.0%. The expense in the prior year reflects $0.6 million in acquisition expense related to Rimports and a reversal of the fair value of the contingent consideration related to the acquisition of Rimports of $4.8 million in the fourth quarter of 2018. After eliminating the effect of the acquisition expense and contingent consideration reversal related to Rimports, the decrease in selling, general and administrative expense for the year ended December 31, 2019 reflects lower commission, salaries and incentives at Rimports and Sterno Home. Selling, general and administrative expense represented 10.0% of net sales for the year ended December 31, 2019 as compared to 9.1% of net sales for the same period in 2018.

Income from operations

Income from operations for the year ended December 31, 2019 was approximately $44.8 million, an increase of $2.3 million when compared to the same period in 2018, based on the factors noted above.

107

Liquidity and Capital Resources

The following table summarizes our cash activity for the years presented:

Year ended December 31,

Effect of exchange rates on cash and cash equivalents 914 (1,178) 2,958

Increase (decrease) in cash and cash equivalents $ (29,570) $ 46,988 $ 13,441

Cash Flow from Operating Activities

2020

Cash flows provided by operating activities totaled approximately $148.6 million for December 31, 2020, which represents an increase of $64.1 million compared to cash flow from operating activities of $84.6 million for the year ended December 31, 2019. The increase in cash flows in 2020 is attributable to an increase in income from continuing operations in the year ended December 31, 2020, driven by strong performance at our 5.11, Liberty and Velocity businesses, and an increase in cash provided by working capital. In the prior year, the Company incurred interest expense related to the 2018 Term Loan, which we paid off in the third and fourth quarter of 2019 using the proceeds from the sale of Clean Earth and our Series C Preferred Share Offering. The payoff of the 2018 Term Loan, partially offset by the increase in interest expense related to $200 million in our 8% Senior Notes issued in May 2020, resulted in a decrease in our interest expense in the current year as compared to 2019 by approximately $12.4 million. In the prior year, we also recognized a loss of $10.2 million related to the sale of common shares received as part of the consideration for the sale of Manitoba Harvest. Cash provided by operating activities for working capital for the year ended December 31, 2020 was $3.3 million as compared to cash used in operating activities for working capital of $15.2 million for the year ended December 31, 2019. The increase in cash provided by working capital in the current year primarily reflects steps our businesses have taken to maintain liquidity in the current economy.

2019

Cash flows provided by operating activities totaled approximately $84.6 million for the year ended December 31, 2019, which represents a decrease of $29.9 million compared to cash flow from operating activities of $114.5 million for the year ended December 31, 2018. The decrease in cash provide by operating activities is primarily due to the effect of cash flows from discontinued operations and reflects the timing of the sale of Manitoba Harvest and Clean Earth in fiscal year 2019. Cash used in operating activities of discontinued operations in the year ended December 31, 2019 was $10.1 million while cash provided by operating activities of discontinued operations was $42.6 million in year ended December 31, 2018. Fiscal year 2018 reflects a full year of operations of our discontinued operations while 2019 reflects the effect of the sales of Manitoba Harvest in February 2019 and Clean Earth in June 2019. Cash used in operating activities for working capital for the year ended December 31, 2019 was $15.2 million as compared to cash used for working capital of $7.7 million for the year ended December 31, 2018. The increase in cash used for working capital purposes in the current year primarily reflects the effect of our acquisitions that occurred in February 2018 which resulted in an increase in cash needed to fund working capital, particularly at Rimports.

2018

Cash flows provided by operating activities totaled approximately $114.5 million for the year ended December 31, 2018, which represented an increase of $32.7 million compared to cash flow from operating activities of $81.8 million for the year ended December 31, 2017. Cash used in operating activities for working capital for the year ended December 31, 2018 was $7.7 million as compared to cash used for working capital of $37.3 million for the year ended December 31, 2017. Our working capital cash flows in the year ended December 31, 2018 reflect a significant decrease in the cash flows from accounts receivable as well as a significant decrease in cash flow paid for accounts payable and accrued expenses compared to the prior year, resulting in an overall decrease in the cash used for working capital. This decrease mostly reflects timing of collections and payments in 2018.

108

Cash Flow from Investing Activities

2020

Cash flows used in investing activities totaled approximately $700.8 million for the year ended December 31, 2020, compared to $743.1 million provided by investing activities during the year ended December 31, 2019. Cash provided by investing activities in the prior year primarily related to the proceeds received from the sale of our Manitoba Harvest and Clean Earth businesses, while investing activities in the current year reflect our acquisition of Marucci in April 2020, BOA in October 2020 and an add-on acquisition by Foam Fabricators in July 2020 ($667.1 million). Capital expenditures in the year ended December 31, 2020 decreased $4.1 million compared to the year ended December 31, 2019, which reflects a reduction in our capital spending in the current year in response to the anticipated effect of the COVID-19 pandemic on our cash flows. We expect capital expenditures for fiscal year 2021 to be approximately $32 million to $41 million.

2019

Cash flows provided by investing activities totaled approximately $743.1 million for the year ended December 31, 2019, compared to $604.1 million used in investing activities during the year ended December 31, 2018. Cash flows from Clean Earth and Manitoba Harvest, which are reflected as discontinued operations, totaled $279.2 million in fiscal year 2019 and reflects the effect of the sale transactions. Cash provided by investing activities in the current year primarily relates to the proceeds received from the sales of Clean Earth and Manitoba. In the year ended December 31, 2018, we had a platform acquisition in the first quarter, Foam Fabricators, and several add-on acquisitions at our subsidiaries. Sterno acquired Rimports in February 2018, and our Velocity Outdoor subsidiary acquired Ravin in September 2018. The total cash paid for these acquisitions during 2018 was $495.1 million. Capital expenditures in the year ended December 31, 2019 decreased $6.1 million, due primarily to expenditures at our 5.11 business related to investments in various infrastructure and systems projects in 2018 that were nonrecurring in 2019.

2018

Cash flows used in investing activities in the year ended December 31, 2018 totaled approximately $604.1 million, compared to $77.3 million used in investing activities during the year ended December 31, 2017, an increase of $526.8 million. During the year ended December 31, 2018, we had a platform acquisition in the first quarter, Foam Fabricators, and several add-on acquisitions at our subsidiaries. Sterno acquired Rimports in February 2018, and our Velocity Outdoor subsidiary acquired Ravin in September 2018. The total cash paid for these acquisitions during 2018 was $495.1 million, while in the year ended December 31, 2017, we spent approximately $158.7 million related to our acquisition of Velocity Outdoor and an add-on acquisition at our Clean Earth subsidiary, which was sold in 2019. The cash flows from Clean Earth are included in cash flows from investing activities - discontinued operations in the consolidated statement of cash flows. Capital expenditures in the year ended December 31, 2018 increased $2.5 million, due primarily to expenditures at our 5.11 business related to investments in various infrastructure and systems projects to position them for future growth.

Cash Flow from Financing Activities

2020

Cash flows provided by financing activities totaled approximately $521.7 million for the year ended December 31, 2020, as compared to cash flows used in financing activities of $779.5 million for the year ended December 31, 2019. Financing activities in both periods reflect the payment of our common and preferred share distributions, with a $6.3 million increase in the preferred share distribution as a result of the issuance of our Series C Preferred Shares in November 2019. In the prior year, we used the proceeds from our sale of Manitoba Harvest and Clean Earth to repay amounts outstanding under our 2018 Revolving Credit Facility and 2018 Term Loan, while in the current year, we completed a common share offering and the issuance of $200 million in Senior Notes, resulting in net proceeds of $285.9 million. We drew approximately $200 million on our 2018 Revolving Credit Facility that was used in the financing of our Marucci acquisition, and $300 million that was used in the financing of our BOA acquisition. A portion of the proceeds received from the issuance of Senior Notes and common share offering was used to pay down the amount outstanding on our 2018 Revolving Credit facility subsequent to the Marucci acquisition. During the year ended December 31, 2020, we also made a distribution to the Allocation Member of $9.1 million related to the five year Holding event for our Sterno business.

109

2019

Cash flows used by financing activities totaled approximately $779.5 million for the year ended December 31, 2019, as compared to cash flows provided by financing activities of $500.1 million for the year ended December 31, 2018. During 2019, we used the proceeds from our sales of Manitoba Harvest and Clean Earth as well as the proceeds from our Series C Preferred Share offering to repay $832.3 million of the outstanding amount under our 2018 Credit Facility, which represented all of the amount outstanding under our 2018 Term Loan, as well as the outstanding amounts under our 2018 Revolving Credit Facility. In additional to the payment of our common and preferred share distributions, we also made a distribution during 2019 to our Allocation Interest holders of $60.4 million related to the sales of Manitoba Harvest and Clean Earth.

2018

Cash flows provided by financing activities totaled approximately $500.1 million for the year ended December 31, 2018, as compared to cash flows used in financing activities of $2.6 million for the year ended December 31, 2017. Our financing cash flows in 2018 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 $96.5 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 April 2018, we issued $400 million in Senior Notes and amended our credit facility. The proceeds from the issuance of the Senior Notes were used to pay down outstanding amounts under our credit facility. Concurrently with the issuance of our Senior Notes, we refinanced our 2014 Credit Facility and reduced the amount outstanding on our term loan from $558.6 million to $500 million. In addition to activity on our credit facility, financing activities reflect the payment of our quarterly common share distributions ($86.3 million in 2018 and 2017) and preferred share distributions ($12.2 million in 2018 and $2.5 million in 2017).

Total Liabilities and Intercompany loans to our businesses

The following table summarizes the total liabilities and intercompany debt of our business as of December 31, 2020:

(in thousands) Intercompany Loans Total Liabilities

Each loan 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. 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 principle on these intercompany loans. 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 revolving credit facility, and serves the purpose of optimizing the capital

110

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 $56.8 million to fund a distribution to the Company, which owned 100% of the outstanding equity of Sterno at the time of the recapitalization, and (ii) extend the maturity dates of the term loans. In connection with the recapitalization, Sterno's management team exercised all of their vested stock options, which represented 58,000 shares of Sterno. The Company then used a portion of the distribution to repurchase the 58,000 shares from management for a total purchase price of $6.0 million. In addition, Sterno issued new stock options to replace the exercised options, thus maintaining the same percentage of fully diluted non-controlling interest that existed prior to the recapitalization. In February 2018, Sterno completed the acquisition of Rimports for a purchase price of approximately $145 million. Concurrent with the closing of the acquisition of Rimports, we amended the Sterno Loan Agreement to provide for the advance of additional term loans in the aggregate amount of $136 million, and revolving loans in the amount of $10 million.

In November 2020, the Company completed a recapitalization of ACI whereby the Company entered into an amendment to the intercompany loan agreement with ACI (the "ACI Loan Agreement"). The ACI Loan Agreement was amended to (i) provide for term loan borrowings of $48.8 million to fund the repurchase of shares from an existing shareholder and to fund a distribution to shareholders, and ii) extend the maturity dates of the term loans, and termination date of the revolving loan commitment. In connection with the recapitalization, ACI repurchased 47,870 shares of ACI capital stock, and distributed $42.8 million to shareholders. The Company owned 71.8% of the outstanding shares of ACI on the date of the distribution and received $30.7 million. The remaining amount of the distribution went to minority shareholders.

In the fourth quarter of 2020, we amended the Arnold intercompany credit agreement to increase the revolving credit commitment available under the credit agreement, and amended the financial covenants to reflect the increased commitment. In the first quarter of 2019, we amended the 5.11 intercompany credit 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. Liberty was not in compliance with the financial covenants under their intercompany loan agreement at December 31, 2018, and we amended the Liberty intercompany credit agreement to grant a waiver to them through the quarter ended December 31, 2019. All of our subsidiaries were in compliance with the financial covenants included within their intercompany credit arrangements at December 31, 2020.

Our primary source of cash is from the receipt of interest and principal on our outstanding loans to our businesses. Accordingly, we are dependent upon the earnings and cash flow of 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 or potentially due pursuant to the revised MSA and the LLC Agreement; (iv) cash distributions to our shareholders; and (v) investments in future acquisitions. Payments made under (i) through (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 the 2018 Credit Facility to amend and restate the 2014 Credit Facility, originally dated as of June 6, 2014. The 2018 Credit Facility provides for (i) revolving loans, swing line loans and letters of credit up to a maximum aggregate amount of $600 million, and (ii) a $500 million term loan. All amounts outstanding under the 2018 Revolving Credit Facility will become due on April 18, 2023, which is the maturity date of loans advanced under the 2018 Revolving Credit Facility and the termination date of the revolving loan commitment. The 2018 Credit Facility also permits us, prior to the applicable maturity date, to increase the revolving loan commitment and/or obtain additional term loans in an aggregate amount of up to $250 million subject to certain restrictions and conditions.

111

During the year ended December 31, 2019, we repaid $193.8 million of the 2018 Term Loan in July 2019, and the remaining $298.8 million due under the 2018 Term loan in November 2019. During the year ended December 31, 2020, we drew approximately $200 million on our 2018 Revolving Credit Facility that was used in the financing of our Marucci acquisition, and $300 million that was used in the financing of our BOA acquisition. A portion of the proceeds received from the issuance of Senior Notes and common share offering that we completed in May 2020 was used to pay down the amount outstanding on our 2018 Revolving Credit Facility subsequent to the Marucci acquisition. At December 31, 2020, $307.0 million was outstanding under our 2018 Revolving Credit Facility.

The 2018 Credit Facility provides for letters of credit under the 2018 Revolving Credit Facility in an aggregate face amount not to exceed $100 million outstanding at any time, as well as swing line loans of up to $25 million outstanding at one time. At no time may the (i) aggregate principal amount of all amounts outstanding under the Revolving Credit Facility, plus (ii) the aggregate amount of all outstanding letters of credit and swing line loans, exceed the borrowing availability under the 2018 Credit Facility.

The 2018 Credit Facility is secured by all of the assets of the Company, including all of its equity interests in, and loans to, its consolidated subsidiaries. At December 31, 2020, we had letters of credit totaling $1.3 million outstanding under the 2018 Revolving Credit Facility. We had approximately $291.7 million in borrowing base availability under this facility at December 31, 2020. (See "Note I - Debt" to the consolidated financial statements for more detail regarding our 2018 Credit Facility).

2014 Credit Facility

The 2014 Credit Facility, as amended, provided for (i) a revolving credit facility of $550 million, (ii) a $325 million term loan (the "2014 Term Loan"), and (iii) a $250 million incremental term loan. The 2018 Credit Facility amended and restated the 2014 Credit Facility.

Senior Notes

On April 18, 2018, we consummated the issuance and sale of $400 million aggregate principal amount of our 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 Senior Notes were issued pursuant to an indenture, dated as of April 18, 2018 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee. The Notes bear interest at the rate of 8.000% per annum and will mature on May 1, 2026. Interest on the Senior Notes is payable in cash on May 1st and November 1st of each year, beginning on November 1, 2018. On May 7, 2020, we consummated the issuance and sale of $200 million aggregate principal amount of our 8.000% Senior Notes due 2026 (the "Additional Notes"). The proceeds from the Additional Notes were used to pay down the amount outstanding on the Company's 2018 Revolving Credit Facility. The Senior Notes and Additional Notes are general senior unsecured obligations of the Company and are not guaranteed by our subsidiaries.

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

The following table reflects required and actual financial ratios as of December 31, 2020 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 1.50:1.00 4.39:1.00

Total Secured Debt to EBITDA Ratio Less than or equal to 3.50:1.00 0.99:1.00

Total Debt to EBITDA Ratio Less than or equal to 5.00:1.00 3.09:1.00

We intend to use the availability under our 2018 Credit Facility and cash on hand to pursue acquisitions of additional businesses, to fund distributions (if and to the extent approved by our board of directors) and to provide for other working capital needs. We believe that we currently have sufficient liquidity and capital resources, which include

112

amounts available under our 2018 Revolving Credit Facility, to meet our existing obligations over the next twelve months.

Interest Expense

We incurred interest expense totaling $45.8 million in the year ended December 31, 2020, as compared to $58.2 million in the year ended December 31, 2019 and $55.2 million for the year ended December 31, 2018.

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

Years ended December 31,

Amortization of bond premium/ original issue discount (222) 459 729

Unrealized (gain) loss on interest rate derivatives (1) — 3,486 (2,251)

Letter of credit fees 33 28 8

(1) On September 16, 2014, we purchased an interest rate swap (“Swap”) with a notional amount of $220 million effective April 1, 2016 through June 6, 2021. The agreement required us to pay interest on the notional amount at the rate of 2.97% in exchange for the three-month LIBOR rate. In connection with the repayment of the 2018 Term Loan in December 2019, the Company terminated the Swap with a payment of $4.9 million, the fair value of the Swap as of the date of settlement.

Income Taxes

Compass Diversified Holdings and Compass Group Diversified Holdings LLC are classified as partnerships for U.S. Federal income tax purposes and are not subject to income taxes. Each of the Company’s majority owned subsidiaries are subject to Federal, state and in some cases, foreign income taxes. On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act of 2017 ("Tax Act"). The Tax Act reduced the U.S. federal corporate income tax rate from 35% to 21% and required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings. The Tax Act also subjects the Company to tax on global intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries. The Financial Accounting Standards Board ("FASB") Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense. The Company has elected to account for GILTI as a period cost in the year the tax is incurred.

We recorded an income tax provision of $16.9 million with an annual effective rate of 38.4% during the year ended December 31, 2020, an income tax provision of $14.7 million with an annual effective tax rate of 56.6% during the year ended December 31, 2019, and $10.5 million in income tax benefit with an effective tax rate of 124.4% during the year ended December 31, 2018. Our gains and losses incurred at the Company's parent, which is an LLC, are not tax deductible at the corporate level as those costs are passed through to the shareholders.

113

The components of our income tax (benefit) expense as a percentage of income from continuing operations before income taxes for the years ended December 31, 2020, 2019 and 2018 are as follows:

Year ended December 31,

United States Federal Statutory Rate 21.0 % (21.0) % (21.0) %

State income taxes (net of Federal benefits) 6.0 10.6 9.7

Impairment expense — 21.7 —

Impact of subsidiary employee stock options 1.0 0.5 (0.6)

Non-deductible acquisition costs 1.2 — —

Non-recognition of various carryforwards at subsidiaries (2.5) 4.6 11.6

Utilization of tax credits (0.7) (7.7) (5.2)

Effect of Tax Act - GILTI tax (0.5) 5.6 20.6

Effect of Tax Act - remeasurement of deferred tax assets and liabilities — — 0.2

Effect of Tax Act - transition tax on non-U.S. subsidiaries' earnings — — 4.2

(1)The effective income tax rate for each of the years presented includes losses at the Company’s parent, which is taxed as a partnership.

Reconciliation of Non-GAAP Financial Measures

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. GAAP or US GAAP refers to generally accepted accounting principles in the United States.

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 EBITDA, Adjusted EBITDA and Cash Flow Available for Distribution and Reinvestment (“CAD”).

114

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

EBITDA – Earnings before Interest, Income Taxes, Depreciation and Amortization (“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– Is calculated utilizing the same calculation as described above in arriving at EBITDA further adjusted by: (i) non-controlling shareholder 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; (iv) impairment charges, which reflect write downs to goodwill or other intangible assets; (v) other income or expense, including gains or losses recorded in connection with the sale of fixed assets; (vi) changes in the fair value of contingent consideration subsequent to initial purchase accounting; (vii) integration service fees, which reflect fees paid by newly acquired companies to the Manager for integration services performed during the first year of ownership, and (viii) gains or losses recognized upon the sale of a business.

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 net income (loss) 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 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):

115

Adjusted EBITDA

Adjusted for:

Gain on sale of business (100) — — — — — — — — — — (100)

116

Adjusted EBITDA

Adjusted for:

Loss on debt extinguishment 12,319 — — — — — — — — 12,319

Inventory adjustment — — — — — — — 281 — 281

Adjustment to earnout provision — — — — 2,022 — — — — 2,022

Integration services fee — — — 266 — 58 — — — 324

(1)Net income (loss) does not include income (loss) from discontinued operations for the year ended December 31, 2019.

117

Adjusted EBITDA

Adjusted for:

Gain on sale of businesses (1,258) — — — — — — — — (1,258)

Gain on equity method investment — 4,175 — — — — — — — 4,175

Adjustment to earnout provision — — — — — — — — (4,800) (4,800)

(1)Net income (loss) does not include income (loss) from discontinued operations for the year ended December 31, 2018.

(2)As a result of the sales of Manitoba Harvest in February 2019 and Clean Earth in June 2019, Adjusted EBITDA does not include $5.5 million in Adjusted EBITDA from Manitoba Harvest and $41.9 million of Adjusted EBITDA from Clean Earth.

118

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 information to our shareholders in order to enable them to evaluate our ability to make anticipated quarterly distributions. Because other entities do not necessarily calculate CAD the same way we do, our presentation of CAD may not be comparable to similarly titled measures provided by other entities. We believe that our historic and future CAD, together with our cash balances and access to cash via our debt facilities, will be sufficient to meet our anticipated distributions over the next twelve months. The table below reconciles CAD to net income and to cash flow provided by operating activities, which we consider to be the most directly comparable financial measure calculated and presented in accordance with GAAP.

Year ended December 31,

Impairment expense — 32,881 —

Amortization of debt issuance costs and premium/ discount 2,232 3,773 4,483

Loss (gain) on interest rate derivative — 3,500 (2,251)

Changes in operating assets and liabilities 3,349 (45,293) (6,250)

Plus:

Realized loss from foreign currency effect (2) — 363 4,083

Earnout provision adjustment (3) — 2,022 —

Loss on sale of Tilray common stock — 10,193 —

Changes in operating assets and liabilities — 45,293 6,250

Less:

Changes in operating assets and liabilities 3,349 — —

Payment on interest rate swap — 675 1,783

Earnout provision adjustment (3) — — 4,800

Maintenance capital expenditures: (6)

Compass Group Diversified Holdings LLC — — —

119

Manitoba Harvest (divested in February 2019) — — 481

Marucci Sports 849 — —

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

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

(3)Earnout provision adjustment related to the change in estimate of contingent consideration that was recorded in the consolidated statement of operations.

(4)Includes $4.2 million in additional reserves recorded in the fourth quarter of 2018 for slow moving inventory acquired prior to our ownership of 5.11.

(5)Represents the effect on earnings of reserves for inventory and accounts receivable.

(6)Represents maintenance capital expenditures that were funded from operating cash flow and excludes growth capital expenditures of approximately $13.7 million, $16.4 million and $22.5 million incurred during the years ended December 31, 2020, 2019 and 2018, respectively.

Seasonality

The following table presents the net sales by quarter as a percentage of our annual net sales.

Year Ended December 31,

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 and Certain Transactions Involving our Businesses

We have entered into related party transactions with our Manager, CGM including the following:

•Management Services Agreement

•LLC Agreement

•Integration Services Agreements

•Cost Reimbursement and Fees

120

Management Services Agreement

We entered into the MSA with CGM effective May 16, 2006. Our Chief Executive Officer is a partner of CGM. The MSA provides for, among other things, CGM to perform services for us in exchange for a management fee paid quarterly and equal to 0.5% of our adjusted net assets. The management fee is required to be paid prior to the payment of any distributions to shareholders. For the years ended December 31, 2020, 2019, and 2018, we incurred $34.7 million, $37.0 million, and $43.4 million, respectively, in management fees to CGM.

Pursuant to the MSA, CGM is entitled to enter into off-setting management service agreements with each of our segments. The amount of the fee is negotiated between CGM and the operating management of each segment and is based upon the value of the services to be provided. The fees paid directly to CGM by the segments offset on a dollar for dollar basis the amount due to CGM by the Company under the MSA. Concurrent with the June 2019 sale of Clean Earth (refer to Note D - Discontinued Operations) CGM agreed to waive the management fee on cash balances held at the Company, commencing with the quarter ended June 30, 2019 and continuing until the quarter during which the Company next borrows under the 2018 Revolving Credit Facility. In March 2020, as a proactive measure to provide the Company with additional cash liquidity in light of the COVID-19 pandemic, the Company elected to draw down $200 million on our 2018 Revolving Credit Facility. The Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of March 31, 2020. In addition, due to the unprecedented uncertainty as a result of the COVID-19 pandemic, CGM agreed to waive 50% of the management fee calculated at June 30, 2020 that was paid in July 2020. Further, for the third quarter of 2020, the Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of September 30, 2020. CGM has also entered into a waiver of the MSA for a period through December 31, 2021 to receive a 1% annual management fee related to BOA, rather than the 2% called for under the MSA, which reduced the management fee paid for the fourth quarter of 2020. Additionally, during the third quarter of 2018, CGM waived $0.6 million in management fees attributable to the assets acquired in September related to an acquisition by Velocity Outdoor.

During the current year, the Company paid CGM $0.1 million representing the management fee due from Arnold at December 31, 2020. At December 31, 2020, Arnold has accrued $0.1 million due to the Company to reimburse us for the management fee paid on their behalf.

LLC Agreement

As distinguished from its provision of providing management services to us, pursuant to the amended MSA, members of CGM are owners of 50.0% of the Allocation Interests in us through their ownership in Sostratus LLC. The LLC agreement gives the holders of Allocation Interests the right to distributions pursuant to a profit allocation formula upon the occurrence of a Sale Event or a Holding Event. The Allocation Interest Holders are entitled to receive and as such can elect to receive the positive contribution-based profit allocation payment for each of the business acquisitions during the 30-day period following the fifth anniversary of the date upon which we acquired a controlling interest in that business (Holding Event) and upon the sale of the business (Sale Event). Holders received $9.1 millionand $60.4 million in distributions related to Sale and Holding Events that occurred during 2020 and 2019, respectively. Refer to "Note L - Stockholders' Equity" for a description of the profit allocation payments. There were no allocation payments made to the Allocation Interest Holders in 2018.

Certain persons who are employees and partners of the Manager, including the Company’s Chief Executive Officer, beneficially owned (through Sostratus LLC) 45% of the Allocation Interests at December 31, 2020, and 50% of the Allocation Interests at December 31, 2019. Of the remaining 55% at December 31, 2020 and 50% at December 31, 2019, 5.0% was held by CGI Diversified Holdings LP, 5.0% was held by the Chairman of the Company’s Board of Directors, and the remaining Allocation Interests were held by the former founding partners of the Manager.

Integration Services Agreements

Integration services represent fees paid by newly acquired companies to the Manager for integration services performed during the first year of ownership. BOA, which was acquired in October 2020, entered into an Integration Services Agreement ("ISA") with CGM whereby BOA will pay CGM $4.4 million quarterly over a twelve month period as services are rendered, beginning in the quarter ended December 31, 2020. Marucci Sports, which was acquired in April 2020, entered into an ISA with CGM whereby Marucci will pay integration service fees of $2.0 million payable quarterly over a twelve month period as services are rendered beginning in the quarter ended September 30, 2020. Under the ISAs, CGM provides services for new platform acquisitions to, amongst other things, assist the management at the acquired entities in establishing a corporate governance program, implement compliance and

121

reporting requirements of the Sarbanes-Oxley Act of 2002, as amended, and align the acquired entity's policies and procedures with our other subsidiaries. Foam Fabricators, which was acquired in 2018, entered into an ISA with CGM. Foam Fabricators paid CGM $2.3 million over the term of the ISA, with $2.0 million paid in 2018 and $0.3 million in 2019. Velocity Outdoor paid CGM a total of $1.5 million in integration services fees, with $0.75 million paid in 2018. During the years ended December 31, 2020, 2019 and 2018, CGM received $2.2 million, $0.3 million, and $2.7 million, respectively, in total integration service fees.

Cost Reimbursement and Fees

We reimbursed CGM approximately $5.2 million, $5.6 million, and $4.1 million, principally for occupancy and staffing costs incurred by CGM on our behalf during the years ended December 31, 2020, 2019 and 2018, respectively.

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

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 years ended December 31, 2020, 2019 and 2018, 5.11 purchased approximately $2.7 million, $4.4 million, and $5.0 million, respectively, in inventory from the vendor.

BOA

Related Party Vendor Purchases - A contract manufacturer used by BOA as the primary supplier of molded injection parts is a noncontrolling shareholder of BOA. BOA purchased approximately $6.7 million in parts from this supplier from October 16, 2020 (date of acquisition) through December 31, 2020.

Liberty

Related Party Vendor Purchases - Liberty purchases inventory raw materials from a vendor who is a related party to Liberty through an executive officer of Liberty via the employment of family members at the vendor. During the years ended December 31, 2020, 2019 and 2018, Liberty purchased approximately $0.6 million, $0.5 million and $2.1 million, respectively, in raw materials from the vendor.

Advanced Circuits

Recapitalization - In November 2020, the Company completed a recapitalization of ACI whereby the Company entered into an amendment to the intercompany loan agreement with ACI (the "ACI Loan Agreement"). The ACI Loan Agreement was amended to (i) provide for term loan borrowings of $48.8 million to fund the repurchase of shares from an existing shareholder and to fund a distribution to shareholders, and ii) extend the maturity dates of the term loans, and termination date of the revolving loan commitment. In connection with the recapitalization, ACI repurchased 47,870 shares of ACI capital stock, and distributed $42.8 million to shareholders. The Company owned 71.8% of the outstanding shares of ACI on the date of the distribution and received $30.7 million. The remaining amount of the distribution was paid to minority shareholders.

Sterno

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

Off-Balance Sheet Arrangements

We have no special purpose entities or off-balance sheet arrangements, other than operating leases entered into in the ordinary course of business.

122

Contractual Obligations

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

The table below summarizes the payment schedule of our contractual obligations at December 31, 2020:

(in thousands) Total Less than 1 Year 1-3 Years 3-5 Years More than5 Years

(1)Reflects commitment fees and letter of credit fees under our Revolving Credit Facility and amounts due, together with interest on our Senior Notes.

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

(3)Reflects non-cancelable commitments as of December 31, 2020, including: (i) shareholder distributions of $117.6 million; (ii) estimated management fees of $38.5 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 fiscal quarter. The amount approved for future quarters may differ from the amount included in this schedule.

(4)The contractual obligation table does not include approximately $1.2 million in liabilities associated with unrecognized tax benefits as of December 31, 2020 as the timing of the recognition of this liability is not certain. The amount of the liability is not expected to significantly change in the next twelve months.

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. Such estimates and judgments may involve varying degrees of uncertainty. Actual results could differ from these estimates under different assumptions and changes in other facts and circumstances, and potentially could result in materially different results. Our critical accounting estimates are discussed below. For a summary of our significant accounting policies, including those policies discussed below, refer to "Note B - Summary of Significant Accounting Policies" to our consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the 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 represents 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

123

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 probablethat a significant reversal in the amount of cumulative revenuerecognized 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.

Goodwill and Intangible Assets

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

2020 Annual Impairment Testing - For our annual impairment testing at March 31, 2020, we performed a qualitative assessment of our reporting units. As part of our current year analysis, we have considered how we expect the

124

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

CODI US Equity

CODI · 10-K · period ended 2020-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CODI US Equity☆

CODI · 10-K · period ended 2020-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CODI US Equity