Edgar Filing: Compass Diversified Holdings

(State or other jurisdiction of
incorporation or organization)

(Commission
file number)

(I.R.S. employer
identification number)

CODI 06.30.2015-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



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

For the quarterly period ended June 30, 2015



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

For the transition period from to

COMPASS DIVERSIFIED HOLDINGS

(Exact name of registrant as specified in its charter)

COMPASS GROUP DIVERSIFIED HOLDINGS LLC

(Exact name of registrant as specified in its charter)

Sixty One Wilton Road

Second Floor

Westport, CT 06880

(203) 221-1703

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

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

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

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

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

As of August 1, 2015, there were 54,300,000 shares of Compass Diversified Holdings outstanding.

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COMPASS DIVERSIFIED HOLDINGS

QUARTERLY REPORT ON FORM 10-Q

For the period ended June 30, 2015

TABLE OF CONTENTS



		Page Number
	Forward-looking Statements	4
Part I	Financial Information
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014	5
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014 (unaudited)	6
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014 (unaudited)	7
	Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2015 (unaudited)	8
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)	9
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	65
Item 4.	Controls and Procedures	65

Part II	Other Information	67
Item 1.	Legal Proceedings	67
Item 1A.	Risk Factors	67
Item 6.	Exhibits	68
Signatures		69

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NOTE TO READER

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


•	the “Trust” and “Holdings” refer to Compass Diversified Holdings;


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


•	the “Company” refer to Compass Group Diversified Holdings LLC;


•	the “Manager” refer to Compass Group Management LLC (“CGM”);


•	the “initial businesses” refer to, collectively, Staffmark Holdings, Inc. (“Staffmark”), Crosman Acquisition Corporation, Compass AC Holdings, Inc. (“ACI” or “Advanced Circuits”) and Silvue Technologies Group, Inc.;


•	the "2014 acquisitions" refer to, collectively, the acquisitions of Clean Earth Holdings, Inc. and SternoCandleLamp;


•	the “Trust Agreement” refer to the amended and restated Trust Agreement of the Trust dated as of November 1, 2010;


•	the “2011 Credit Facility” refer to a credit agreement (as amended) with a group of lenders led by Toronto Dominion (Texas) LLC, as agent, which provided for the 2011 Revolving Credit Facility and the 2011 Term Loan Facility;


•	the “2011 Revolving Credit Facility” refer to the $320 million Revolving Credit Facility provided by the 2011 Credit Facility;


•	the "2011 Term Loan Facility" refer to the Term Loan Facility provided by the 2011 Credit Facility;


•	the "2014 Credit Facility" refer to the credit agreement, as amended from time to time, entered into on June 6, 2014 with a group of lenders led by Bank of America N.A. as administrative agent, which provides for the 2014 Revolving Credit Facility and the 2014 Term Loan Facility;


•	the “2014 Revolving Credit Facility” refer to the $400 million Revolving Credit Facility provided by the 2014 Credit Facility that matures in June 2019;


•	the “2014 Term Loan” refer to the $325 million Term Loan Facility, provided by the Credit Facility that matures in June 2021;


•	the “LLC Agreement” refer to the fourth amended and restated operating agreement of the Company dated as of January 1, 2012; and


•	“we,” “us” and “our” refer to the Trust, the Company and the businesses together.

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FORWARD-LOOKING STATEMENTS

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


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


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


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


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


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


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


•	our ability to make and finance future acquisitions;


•	our ability to implement our acquisition and management strategies;


•	the regulatory environment in which our businesses operate;


•	trends in the industries in which our businesses operate;


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


•	environmental risks affecting the business or operations of our businesses;


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


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


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

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

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

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PART I

FINANCIAL INFORMATION

ITEM 1. — FINANCIAL STATEMENTS

Compass Diversified Holdings

Condensed Consolidated Balance Sheets



(in thousands)	June 30, 2015			December 31, 2014
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	25,379		$	23,703
Accounts receivable, less allowances of $5,115 at June 30, 2015 and $5,200 at December 31, 2014	161,015			157,535
Inventories	125,232			111,214
Prepaid expenses and other current assets	28,149			28,347
Total current assets	339,775			320,799
Property, plant and equipment, net	111,521			115,871
Equity method investment (refer to Note E)	242,948			245,214
Goodwill	350,958			359,180
Intangible assets, net	467,626			487,220
Deferred debt issuance costs, less accumulated amortization of $2,362 at June 30, 2015 and $1,233 at December 31, 2014	10,448			11,197
Other non-current assets	7,420			7,949
Total assets	$	1,530,696		$	1,547,430
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	73,439		$	62,099
Accrued expenses	54,251			63,378
Due to related party	6,124			6,193
Current portion, long-term debt	3,250			3,250
Other current liabilities	3,894			6,311
Total current liabilities	140,958			141,231
Deferred income taxes	96,820			97,731
Long-term debt, less original issue discount	503,532			485,547
Other non-current liabilities	15,775			14,587
Total liabilities	757,085			739,096
Stockholders’ equity
Trust shares, no par value, 500,000 authorized; 54,300 shares issued and outstanding at June 30, 2015 and December 31, 2014	825,321			825,321
Accumulated other comprehensive income (loss)	(1,840		)	(2,542		)
Accumulated deficit	(94,889		)	(55,348		)
Total stockholders’ equity attributable to Holdings	728,592			767,431
Noncontrolling interest	45,019			40,903
Total stockholders’ equity	773,611			808,334
Total liabilities and stockholders’ equity	$	1,530,696		$	1,547,430

See notes to condensed consolidated financial statements.

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Compass Diversified Holdings

Condensed Consolidated Statements of Operations

(unaudited)



	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015			2014
(in thousands, except per share data)
Net sales	$	241,025		$	269,084		$	463,167		$	515,132
Service revenues	43,702			—			78,831			—
Total net revenues	284,727			269,084			541,998			515,132
Cost of sales	166,830			186,542			324,362			356,238
Cost of service revenues	31,936			—			59,759			—
Gross profit	85,961			82,542			157,877			158,894
Operating expenses:
Selling, general and administrative expense	45,540			48,080			89,568			94,253
Management fees	6,791			5,023			13,649			9,758
Amortization expense	9,415			7,678			19,428			15,027
Impairment expense	258			—			9,165			—
Operating income	23,957			21,761			26,067			39,856
Other income (expense):
Interest expense, net	(3,125		)	(4,810		)	(12,843		)	(9,382		)
Amortization of debt issuance costs	(545		)	(583		)	(1,090		)	(1,153		)
Loss on debt extinguishment	—			(2,143		)	—			(2,143		)
Gain (loss) on equity method investment	11,181			—			(2,266		)	—
Other income, net	940			106			633			290
Income before income taxes	32,408			14,331			10,501			27,468
Provision for income taxes	5,833			2,012			9,213			7,776
Net income	26,575			12,319			1,288			19,692
Less: Net income attributable to noncontrolling interest	2,118			6,600			1,733			9,314
Net income (loss) attributable to Holdings	$	24,457		$	5,719		$	(445	)	$	10,378
Basic and fully diluted income (loss) per share attributable to Holdings (refer to Note K)	$	0.40		$	0.11		$	(0.06	)	$	0.19
Weighted average number of shares of trust stock outstanding – basic and fully diluted	54,300			48,300			54,300			48,300
Cash distributions declared per share (refer to Note K)	$	0.36		$	0.36		$	0.72		$	0.72

See notes to condensed consolidated financial statements.

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Compass Diversified Holdings

Condensed Consolidated Statements of Comprehensive Income

(unaudited)



	Three months ended June 30,				Six months ended June 30,
	2015		2014		2015		2014
(in thousands)
Net income	$	26,575	$	12,319	$	1,288	$	19,692
Other comprehensive income (loss)
Foreign currency translation adjustments	447		83		373		52
Pension benefit liability, net	405		21		329		43
Total comprehensive income, net of tax	$	27,427	$	12,423	$	1,990	$	19,787

See notes to condensed consolidated financial statements.

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Compass Diversified Holdings

Condensed Consolidated Statement of Stockholders’ Equity

(unaudited)



(in thousands)	Number of Shares	Amount		Accumulated Deficit			Accum. Other Comprehensive Income (Loss)			Stockholders’ Equity Attrib. to Holdings			Non- Controlling Interest		Total Stockholders’ Equity
Balance — January 1, 2015	54,300	$	825,321	$	(55,348	)	$	(2,542	)	$	767,431		$	40,903	$	808,334
Net income (loss)	—	—		(445		)	—			(445		)	1,733		1,288
Total comprehensive income, net	—	—		—			702			702			—		702
Option activity attributable to noncontrolling shareholders	—	—		—			—			—			1,883		1,883
Effect of subsidiary stock options exercise	—	—		—			—			—			500		500
Distributions paid	—	—		(39,096		)	—			(39,096		)	—		(39,096		)
Balance — June 30, 2015	54,300	$	825,321	$	(94,889	)	$	(1,840	)	$	728,592		$	45,019	$	773,611

See notes to condensed consolidated financial statements.

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Compass Diversified Holdings

Condensed Consolidated Statements of Cash Flows

(unaudited)



	Six months ended June 30,
(in thousands)	2015			2014
Cash flows from operating activities:
Net income	$	1,288		$	19,692
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	12,817			9,507
Amortization expense	19,428			15,027
Impairment expense	9,165			—
Amortization of debt issuance costs and original issue discount	1,425			1,699
Loss on debt extinguishment	—			2,143
Unrealized loss on interest rate swap	1,867			273
Noncontrolling stockholder stock based compensation	1,883			2,969
Loss on equity method investment	2,266			—
Excess tax benefit from subsidiary stock options exercised	—			(1,662		)
Deferred taxes	(1,257		)	(2,935		)
Other	500			228
Changes in operating assets and liabilities, net of acquisition:
Increase in accounts receivable	(1,959		)	(24,105		)
Increase in inventories	(14,021		)	(5,056		)
Increase in prepaid expenses and other current assets	(2,126		)	(3,389		)
Increase (decrease) in accounts payable and accrued expenses	991			(3,071		)
Net cash provided by operating activities	32,267			11,320
Cash flows from investing activities:
Acquisitions, net of cash acquired	517			(43,014		)
Purchases of property and equipment	(9,039		)	(7,601		)
Payment of interest rate swap	(995		)	(996		)
Other investing activities	268			29
Net cash used in investing activities	(9,249		)	(51,582		)
Cash flows from financing activities:
Borrowings under credit facility	71,000			388,000
Repayments under credit facility	(53,350		)	(307,000		)
Distributions paid	(39,096		)	(34,776		)
Net proceeds provided by noncontrolling shareholders	500			1,750
Debt issuance costs	(295		)	(7,370		)
Excess tax benefit from subsidiary stock options exercised	—			1,662
Other	(419		)	(35		)
Net cash (used in) provided by financing activities	(21,660		)	42,231
Foreign currency impact on cash	318			151
Net increase in cash and cash equivalents	1,676			2,120
Cash and cash equivalents — beginning of period	23,703			113,229
Cash and cash equivalents — end of period	$	25,379		$	115,349

See notes to condensed consolidated financial statements.

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Compass Diversified Holdings

Notes to Condensed Consolidated Financial Statements (unaudited)

June 30, 2015

Note A — Organization and Business Operations

Compass Diversified Holdings, a Delaware statutory trust (the "Trust” or "Holdings"), was incorporated in Delaware on November 18, 2005. Compass Group Diversified Holdings, LLC, a Delaware limited liability company (the “Company” or "CODI"), was also formed on November 18, 2005 with equity interests which were subsequently reclassified as the “Allocation Interests”. The Trust and the Company were formed to acquire and manage a group of small and middle-market businesses headquartered in North America. In accordance with the amended and restated Trust Agreement, dated as of April 25, 2006 (the “Trust Agreement”), the Trust is sole owner of 100% of the Trust Interests (as defined in the Company’s amended and restated operating agreement, dated as of April 25, 2006 (as amended and restated, the “LLC Agreement”)) of the Company and, pursuant to the LLC Agreement, the Company has, outstanding, the identical number of Trust Interests as the number of outstanding shares of the Trust. The Company is the operating entity with a board of directors and other corporate governance responsibilities, similar to that of a Delaware corporation.

The Company is a controlling owner of nine businesses, or reportable operating segments, at June 30, 2015. The segments are as follows: CamelBak Acquisition Corp. (“CamelBak”), The Ergo Baby Carrier, Inc. (“Ergobaby”), Liberty Safe and Security Products, Inc. (“Liberty Safe” or “Liberty”), Compass AC Holdings, Inc. (“ACI” or “Advanced Circuits”), American Furniture Manufacturing, Inc. (“AFM” or “American Furniture”), AMT Acquisition Corporation (“Arnold” or “Arnold Magnetics”), Clean Earth Holdings, Inc. ("Clean Earth"), Candle Lamp Company, LLC ("SternoCandleLamp") and Tridien Medical, Inc. (“Tridien”). Refer to Note D for further discussion of the operating segments. The Company also owns a non-controlling interest of approximately 41% in Fox Factory Holding Corp. (“FOX”) which is accounted for as an equity method investment. Compass Group Management LLC, a Delaware limited liability company (“CGM” or the “Manager”), manages the day to day operations of the Company and oversees the management and operations of our businesses pursuant to a management services agreement (“MSA”).

Note B — Presentation and Principles of Consolidation

The condensed consolidated financial statements for the three and six month periods ended June 30, 2015 and June 30, 2014, are unaudited, and in the opinion of management, contain all adjustments necessary for a fair presentation of the condensed consolidated financial statements. Such adjustments consist solely of normal recurring items. Interim results are not necessarily indicative of results for a full year or any subsequent interim period. The condensed consolidated financial statements and notes are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and presented as permitted by Form 10-Q and do not contain certain information included in the annual consolidated financial statements and accompanying notes of the Company. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Seasonality

Earnings of certain of the Company’s operating segments are seasonal in nature. Earnings from CamelBak are typically higher in the spring and summer months as this corresponds with warmer weather in the Northern Hemisphere and an increase in hydration related activities. Earnings from Liberty are typically lowest in the second quarter due to lower demand for safes at the onset of summer. Earnings from AFM are typically highest in the months of January through April of each year, coinciding with homeowners’ tax refunds. Earnings from Clean Earth are typically lower in the winter months due to reduced levels of construction and development activity in the Northeastern United States.

Consolidation

The condensed consolidated financial statements include the accounts of Holdings and all majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The results of operations of FOX are included in the Company's historical condensed consolidated results of operations through July 10, 2014, the date on which our investment in FOX fell below 50% and the FOX entity was deconsolidated.

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Recently Adopted Accounting Pronouncements

In April 2014, the FASB issued an accounting standard update related to reporting discontinued operations and disclosures of disposals of components of an entity which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The new standard applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The amendment was effective for the Company on January 1, 2015. The adoption of this standard is not expected to change the manner in which the Company currently presents discontinued operations in the consolidated financial statements.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued a comprehensive new revenue recognition standard. The new standard outlines a new, 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. The core principle of the revenue model is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statement users across industries, jurisdictions and capital markets and also requires enhanced disclosures. On July 9, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In April 2015, the FASB issued an accounting standard update intended to simplify the presentation of debt issuance costs in the balance sheet. The new guidance requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. Prior to the issuance of the standard, debt issuance costs were required to be presented in the balance sheet as an asset. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosures. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Accordingly, the standard is effective for the Company on January 1, 2016.

Note C — Acquisitions

Acquisition of Clean Earth Holdings, Inc.

On August 26, 2014, CEHI Acquisition Corp., a subsidiary of the Company, closed on the acquisition of all the issued and outstanding capital stock of Clean Earth Holdings, Inc. pursuant to a stock purchase agreement among CEHI Acquisition Corp., Clean Earth, holders of stock and options in Clean Earth and Littlejohn Fund III, L.P., entered into on August 7, 2014.

Headquartered in Hatboro, Pennsylvania, Clean Earth provides environmental services for a variety of contaminated materials including soils, dredged material, hazardous waste and drill cuttings. Clean Earth analyzes, treats, documents and recycles waste streams generated in multiple end-markets such as power, construction, oil and gas, infrastructure, industrial and dredging. Treatment includes thermal desorption, dredged material stabilization, bioremediation, physical treatment/screening and chemical fixation. Before the company accepts contaminated materials, it identifies a third party “beneficial reuse” site such as commercial redevelopment or landfill capping where the materials will be sent after they are treated. Clean Earth holds the largest market share in the contaminated materials and dredged material management market and operates 14 permitted facilities in the Eastern U.S. Revenues from the environmental recycling facilities are generally recognized at the time of treatment.

The Company made loans to and purchased a 98% controlling interest in Clean Earth. The purchase price, including proceeds from noncontrolling interest, was approximately $251.4 million. The Company funded its portion of the acquisition through drawings on its 2014 Revolving Credit Facility and cash on hand. Clean Earth management invested in the transaction along with the Company representing an approximate 2% initial noncontrolling interest on a primary and fully diluted basis. The fair value of the noncontrolling interest was determined based on the enterprise value of the acquired entity multiplied by the ratio of the number of shares acquired by the minority holders to total shares. The transaction was accounted for as a business combination. CGM acted as an advisor to the Company in the acquisition and will continue to provide integration services during the first year of the Company's ownership of Clean Earth. CGM will receive integration service fees of approximately $2.5 million which is payable quarterly during a twelve month period as services are rendered beginning in the quarter ended December 31, 2014.

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The results of operations of Clean Earth have been included in the consolidated results of operations since the date of acquisition. Clean Earth's results of operations are reported as a separate operating segment. The table below provides the recording of assets acquired and liabilities assumed as of the acquisition date.



Clean Earth
(in thousands)
Amounts recognized as of the acquisition date
Assets:
Cash	$	3,683
Accounts receivable ⁽¹⁾	41,821
Property, plant and equipment ⁽²⁾	43,437
Intangible assets	135,939
Goodwill	109,738
Other current and noncurrent assets	8,697
Total assets	$	343,315

Liabilities and noncontrolling interest:
Current liabilities	$	27,205
Other liabilities	149,760
Deferred tax liabilities	61,299
Noncontrolling interest	2,275
Total liabilities and noncontrolling interest	$	240,539

Net assets acquired	$	102,776
Noncontrolling interest	2,275
Intercompany loans to business	148,248
	$	253,299
Acquisition Consideration

Purchase price	$	243,000
Working capital adjustment	6,616
Cash	3,683
Total purchase consideration	$	253,299
Less: Transaction costs	1,935
Purchase price, net	$	251,364


⁽¹⁾	Includes $42.5 million of gross contractual accounts receivable of which $0.6 million was not expected to be collected. The fair value of accounts receivable approximated book value acquired.


⁽²⁾	Includes $20.9 million of property, plant and equipment basis step-up.

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The Company incurred $1.9 million of transaction costs in conjunction with the Clean Earth acquisition during the year ended December 31, 2014 which was included in selling, general and administrative expense in the consolidated statements of income in 2014. The goodwill of $109.7 million reflects the strategic fit of Clean Earth into the Company's niche industrial businesses. The goodwill is not expected to be deductible for tax purposes.

The values assigned to the identified intangible assets were determined by discounting the estimated future cash flows associated with these assets to their present value. The intangible assets recorded in connection with the Clean Earth acquisition are as follows (in thousands):



Intangible assets	Amount		Estimated Useful Life
Customer relationships	$	25,730	15 years
Permits and Airspace	93,209		10 - 20 years
Trade name	17,000		20 years
	$	135,939

Acquisition of SternoCandleLamp

On October 10, 2014, the Company, through its wholly owned subsidiary business, Sternocandlelamp Holdings, Inc., entered into a membership interest purchase agreement (the “Sterno Purchase Agreement”) with Candle Lamp Holdings, LLC (the “Seller”), and Candle Lamp Company, LLC (“SternoCandleLamp”) pursuant to which the Sternocandlelamp Holdings, Inc. acquired all of the issued and outstanding equity of SternoCandleLamp (the “Acquisition”). Headquartered in Corona, California, SternoCandleLamp is the leading manufacturer and marketer of portable food warming fuel and creative table lighting solutions for the food service industry. SternoCandleLamp’s product line includes wick and gel chafing fuels, butane stoves and accessories, liquid and traditional wax candles, catering equipment and lamps. The purchase price was approximately $160.0 million. In addition to its equity investment in SternoCandleLamp, the Company provided loans totaling approximately $91.6 million to SternoCandleLamp as part of the transaction. The transaction is accounted for as a business combination. CGM acted as an advisor to the Company in the acquisition and will continue to provide integration services during the first year of the Company's ownership of SternoCandleLamp. CGM will receive integration service fees of $1.5 million which is payable quarterly over a twelve month period as services are rendered beginning in the quarter ending December 31, 2014.

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The results of operations of SternoCandleLamp have been included in the consolidated results of operations since the date of acquisition. SternoCandleLamp's results of operations are reported as a separate operating segment. The table below provides the recording of assets acquired and liabilities assumed as of the acquisition date.



SternoCandleLamp
(in thousands)
Amounts recognized as of the acquisition date
Assets:
Accounts receivable ⁽¹⁾	$	18,534
Inventory ⁽²⁾	19,932
Property, plant and equipment ⁽³⁾	18,004
Intangible assets	90,950
Goodwill	33,717
Other current and non-current assets	1,734
Total assets	$	182,871
Liabilities:
Current liabilities	20,120
Other liabilities	91,647
Total liabilities	$	111,767

Net assets acquired	71,104
Intercompany loans to business	91,647
	$	162,751
Acquisition Consideration
Purchase price	$	161,500
Working capital adjustment	1,251
Total purchase consideration	$	162,751
Less: Transaction costs	2,765
Purchase price, net	$	159,986


⁽¹⁾	Includes $18.8 million of gross contractual accounts receivable of which $0.2 million was not expected to be collected. The fair value of accounts receivable approximates book value acquired.


⁽²⁾	Includes $2.0 million in inventory basis step-up, which was charged to cost of goods sold during the year ended December 31, 2014.


⁽³⁾	Includes $6.9 million of property, plant and equipment basis step-up.

The Company incurred $2.8 million of transaction costs in conjunction with the SternoCandleLamp acquisition during the year ended December 31, 2014, which was included in selling, general and administrative expense in the consolidated statements of income during that period. The goodwill of $33.7 million reflects strategic fit of SternoCandleLamp into the Company's niche industrial businesses. The goodwill is expected to be deductible for tax purposes.

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The values assigned to the identified intangible assets were determined by discounting the estimated future cash flows associated with these assets to their present value. The intangible assets recorded in connection with the SternoCandleLamp acquisition are as follows (in thousands):

Unaudited pro forma information

The following unaudited pro forma data for the three and six months ended June 30, 2014 gives effect to the acquisition of Clean Earth and SternoCandleLamp, as described above, as if the acquisition had been completed as of January 1, 2014. The pro forma data gives effect to historical operating results with adjustments to interest expense, amortization and depreciation expense, management fees and related tax effects. The information is provided for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the transaction had been consummated on the date indicated, nor is it necessarily indicative of future operating results of the consolidated companies, and should not be construed as representing results for any future period.



(in thousands)	Three Months Ended June 30, 2014		Six Months Ended June 30, 2014
Net sales	$	343,867	$	650,534
Operating income	27,400		45,507
Net income	13,740		19,591
Net income attributable to Holdings	7,114		10,262
Basic and fully diluted net income per share attributable to Holdings	$	0.14	$	0.19

Other acquisitions

Clean Earth

On December 15, 2014, the Company's Clean Earth subsidiary completed the acquisition of American Environmental Services, Inc. ("AES") for a purchase price of approximately $16.1 million after the settlement of the working capital adjustment related to the acquisition of $0.5 million during the second quarter of 2015. AES provides environmental services, managing hazardous and nonhazardous waste from off-site generators. AES has two fully permitted hazardous waste facilities located in Calvert City, Kentucky and Morgantown, West Virginia, serving industrial and government customers across the region. The acquisition expands Clean Earth's customer base and geographic market penetration. The purchase price of AES was allocated to the assets acquired and liabilities assumed based on the estimated fair value as of December 15, 2014, with the excess purchase price allocated to goodwill.

FOX

On March 31, 2014, the Company’s formerly majority owned subsidiary, FOX, acquired certain assets and assumed certain liabilities of Sport Truck USA, Inc. (“Sport Truck”) a privately held global distributor, primarily of its own branded aftermarket suspension solutions and a reseller of FOX products. The transaction was accounted for as a business combination. FOX paid cash consideration of approximately $40.8 million, which is subject to certain working capital adjustments in accordance with the asset purchase agreement. The purchase price of Sport Truck was allocated to the assets acquired and liabilities assumed based on their estimated respective fair values as of March 31, 2014 with the excess purchase price allocated to goodwill.

The net assets acquired in the Sport Truck acquisition were included in the balance of FOX that were deconsolidated as a result of the Company's ownership interest in FOX falling to 41% on July 10, 2014.

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Note D — Operating Segment Data

At June 30, 2015, the Company had nine reportable operating segments. Each operating segment represents a platform acquisition. The Company’s operating segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. A description of each of the reportable segments and the types of products and services from which each segment derives its revenues is as follows:

•

CamelBak is a diversified hydration and personal protection platform, offering products for outdoor, recreation and military applications. CamelBak offers a broad range of recreational / military hydration packs, reusable water bottles, specialized military gloves and performance accessories. Through its global distribution network, CamelBak products are available in more than 65 countries worldwide. CamelBak is headquartered in Petaluma, California.

•

Ergobaby is a premier designer, marketer and distributor of wearable baby carriers and related baby wearing products, as well as infant travel systems (strollers, car seats and accessories). Ergobaby offers a broad range of wearable baby carriers, infant travel systems and related products that are sold through more than 450 retailers and web shops in the United States and throughout the world. Ergobaby has two main product lines: baby carriers (baby carriers and accessories) and infant travel systems (strollers, car seats and accessories). Ergobaby is headquartered in Los Angeles, California.


•	Liberty Safe is a designer, manufacturer and marketer of premium home and gun safes in North America. From it’s over 314,000 square foot manufacturing facility, Liberty produces a wide range of home and gun safe models in a broad assortment of sizes, features and styles. Liberty is headquartered in Payson, Utah.


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

•

American Furniture is a low cost manufacturer of upholstered furniture sold to major and mid-sized retailers. American Furniture operates in the promotional-to-moderate priced upholstered segment of the furniture industry, which is characterized by affordable prices, fresh designs and fast delivery to the retailers. American Furniture was founded in 1998 and focuses on 3 product categories: (i) stationary, (ii) motion (reclining sofas/loveseats) and (iii) recliners. AFM is headquartered in Ecru, Mississippi and its products are sold in the United States.

•

Arnold Magnetics is a leading global manufacturer of engineered magnetic solutions for a wide range of specialty applications and end-markets, including energy, medical, aerospace and defense, consumer electronics, general industrial and automotive. Arnold Magnetics produces high performance permanent magnets (PMAG), flexible magnets (FlexMag) and precision foil products (Precision Thin Metals) that are mission critical in motors, generators, sensors and other systems and components. Based on its long-term relationships, Arnold has built a diverse and blue-chip customer base totaling more than 2,000 clients worldwide. Arnold Magnetics is headquartered in Rochester, New York.

•

Clean Earth provides environmental services for a variety of contaminated materials including soils, dredged material, hazardous waste and drill cuttings. Clean Earth analyzes, treats, documents and recycles waste streams generated in multiple end-markets such as power, construction, oil and gas, infrastructure, industrial and dredging. Clean Earth is headquartered in Hatboro, Pennsylvania and operates 14 facilities in the eastern United States.


•	SternoCandleLamp is a manufacturer and marketer of portable food warming fuel and creative table lighting solutions for the food service industry. SternoCandleLamp's products include wick and gel chafing fuels, butane stoves and accessories, liquid and traditional wax candles, catering equipment and lamps. SternoCandleLamp is headquartered in Corona, California.


•	Tridien is a leading designer and manufacturer of powered and non-powered medical therapeutic support surfaces and patient positioning devices serving the acute care, long-term care and home health care markets. Tridien is headquartered in Coral Springs, Florida and its products are sold primarily in North America.

The tabular information that follows shows data for each of the operating segments reconciled to amounts reflected in the consolidated financial statements. The results of operations of each of the operating segments are included in consolidated operating results as of their date of acquisition. FOX was an operating segment of the Company until July 10, 2014, when FOX was deconsolidated and became an equity method investment. The results of operations of FOX are included in the disaggregated and other financial data presented for the three and six months ended June 30, 2014.

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Segment profit is determined based on internal performance measures used by the Chief Executive Officer to assess the performance of each business. Segment profit excludes certain charges from the acquisitions of the Company’s initial businesses not pushed down to the segments which are reflected in the Corporate and other line item. There were no significant inter-segment transactions.

A disaggregation of the Company’s consolidated revenue and other financial data for the three and six months ended June 30, 2015 and 2014 is presented below (in thousands):



Net sales of operating segments	Three months ended June 30,				Six months ended June 30,
	2015		2014		2015		2014
CamelBak	$	42,574	$	40,879	$	79,496	$	79,649
Ergobaby	21,492		19,467		42,160		39,039
FOX	—		86,373		—		142,481
Liberty	24,756		18,957		50,609		47,852
ACI	23,082		21,286		44,500		42,148
American Furniture	42,427		32,651		83,352		67,491
Arnold Magnetics	29,360		32,767		60,548		63,446
Clean Earth	43,702		—		78,831		—
SternoCandleLamp	38,366		—		66,970		—
Tridien	18,968		16,704		35,532		33,026
Total	284,727		269,084		541,998		515,132
Reconciliation of segment revenues to consolidated revenues:
Corporate and other	—		—		—		—
Total consolidated revenues	$	284,727	$	269,084	$	541,998	$	515,132



International Revenues	Three months ended June 30,				Six months ended June 30,
	2015		2014		2015		2014
CamelBak	$	7,075	$	8,817	$	16,797	$	19,015
Ergobaby	12,274		10,588		23,230		21,693
FOX	—		47,231		—		79,306
Arnold Magnetics	10,645		15,321		23,014		29,588
	$	29,994	$	81,957	$	63,041	$	149,602

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Profit (loss) of operating segments ⁽¹⁾	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015			2014
CamelBak	$	7,284		$	5,829		$	11,635		$	11,684
Ergobaby	5,641			4,228			11,047			8,558
FOX	—			11,736			—			16,483
Liberty	2,764			(2,247		)	4,168			(537		)
ACI	6,766			5,179			12,487			10,581
American Furniture	1,549			1,017			3,225			2,137
Arnold Magnetics	1,720			2,636			3,474			4,060
Clean Earth	1,594			—			40			—
SternoCandleLamp	3,923			—			5,579			—
Tridien	1,005			523			(7,687		)	1,158
Total	32,246			28,901			43,968			54,124
Reconciliation of segment profit to consolidated income (loss) before income taxes:
Interest expense, net	(3,125		)	(4,810		)	(12,843		)	(9,382		)
Other income, net	940			106			633			290
Gain (loss) on equity method investment	11,181			—			(2,266		)	—
Corporate and other ⁽²⁾	(8,834		)	(9,866		)	(18,991		)	(17,564		)
Total consolidated income before income taxes	$	32,408		$	14,331		$	10,501		$	27,468


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


⁽²⁾	Primarily relates to management fees expensed and payable to CGM and corporate overhead expenses during 2015 and 2014.



Accounts receivable	June 30, 2015			December 31, 2014
CamelBak	$	28,868		$	23,346
Ergobaby	11,134			9,671
Liberty	13,265			11,376
ACI	6,703			5,730
American Furniture	21,627			16,641
Arnold Magnetics	16,666			15,664
Clean Earth	41,317			52,059
SternoCandleLamp	18,412			21,113
Tridien	8,138			7,135
Total	166,130			162,735
Reconciliation of segment to consolidated totals:
Corporate and other	—			—
Total	166,130			162,735
Allowance for doubtful accounts	(5,115		)	(5,200		)
Total consolidated net accounts receivable	$	161,015		$	157,535

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	Goodwill				Identifiable Assets				Depreciation and Amortization Expense
	June 30,		December 31,		June 30,		December 31,		Three months ended June 30,				Six months ended June 30,
	2015		2014		2015 ⁽¹⁾		2014 ⁽¹⁾		2015		2014		2015		2014
Goodwill and identifiable assets of operating segments
CamelBak	$	5,546	$	5,546	$	208,278	$	207,831	$	3,183	$	3,475	$	6,291	$	6,849
Ergobaby	41,664		41,664		63,767		65,309		870		957		1,720		1,906
FOX	—		—		—		—		—		2,495		—		4,533
Liberty	32,828		32,828		29,020		34,139		640		1,557		2,232		3,081
ACI	57,615		57,615		17,712		19,334		724		1,278		1,481		2,558
American Furniture	—		—		33,889		27,810		59		41		115		100
Arnold Magnetics	51,767		51,767		78,824		77,610		2,185		2,113		4,378		4,211
Clean Earth	111,339		110,633		193,308		203,938		5,067		—		10,459		—
SternoCandleLamp	33,716		33,716		125,856		126,302		2,156		—		3,620		—
Tridien	7,834		16,762		15,582		14,844		574		633		1,194		1,296
Total	342,309		350,531		766,236		777,117		15,458		12,549		31,490		24,534
Reconciliation of segment to consolidated total:
Corporate and other identifiable assets	—		—		252,487		253,599		252		—		757		—
Amortization of debt issuance costs and original issue discount	—		—		—		—		712		835		1,425		1,699
Goodwill carried at Corporate level ⁽²⁾	8,649		8,649		—		—		—		—		—		—
Total	$	350,958	$	359,180	$	1,018,723	$	1,030,716	$	16,422	$	13,384	$	33,672	$	26,233


⁽¹⁾	Does not include accounts receivable balances per schedule above.


⁽²⁾	Represents goodwill resulting from purchase accounting adjustments not “pushed down” to the ACI segment. This amount is allocated back to the respective segment for purposes of goodwill impairment testing.

Note E - Equity Method Investment

Investment in FOX

FOX is a designer, manufacturer and marketer of high-performance ride dynamic products used primarily for bicycles, side-by-side vehicles, on-road vehicles with off-road capabilities, off-road vehicles and trucks, all-terrain vehicles, snowmobiles, specialty vehicles and applications, and motorcycles. FOX’s products offer innovative design, performance, durability and reliability that enhance ride dynamics by improving performance and control. FOX is headquartered in Scotts Valley, California. In July 2014, FOX, a former majority owned subsidiary of the Company that is publicly traded on the NASDAQ Stock Market under the ticker “FOXF,” used a registration statement on Form S-1 under the Securities Act filed with the Securities and Exchange Commission (the "SEC") for a public offering of its common stock (the "FOX Secondary Offering"). CODI sold 4,466,569 shares of FOX common stock in connection with the FOX Secondary Offering. As a result of the sale of the shares by the Company in the FOX Secondary Offering, the Company’s ownership interest in FOX decreased to approximately 41%, which resulted in the deconsolidation of the FOX operating segment in the Company’s consolidated financial statements effective as of the date of the FOX Secondary Offering. Subsequent to the sale of the shares of FOX common stock by the Company, the Company owns approximately 15.1 million shares of FOX common stock.

The Company has elected to account for its investment in FOX at fair value using the equity method beginning on the date the investment became subject to the equity method of accounting. The Company uses the equity method of accounting when it has the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. For equity method investments which the Company has elected to measure at fair value, unrealized gains and losses are reported in the consolidated statement of operations as gain (loss) from equity method investments. The equity method investment in FOX had a fair value of $242.9 million on June 30, 2015 based on the closing price of FOX shares on that date. The Company recognized

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a gain of $11.2 million for the three months ended June 30, 2015, and a loss of $2.3 million for the six months ended June 30, 2015, respectively, due to the change in the fair value of the FOX investment.

The condensed balance sheet information and results of operations of the Company's FOX investment are summarized below (in thousands):



Condensed Balance Sheet information
	June 30, 2015		December 31, 2014
Current assets	$	154,320	$	112,609
Non-current assets	144,273		145,828
	$	298,594	$	258,437

Current liabilities	$	83,596	$	60,825
Non-current liabilities	79,922		68,806
Stockholders' equity	135,075		128,806
	$	298,593	$	258,437

Condensed Results of Operations ⁽¹⁾
	Three months ended June 30, 2015		Six months ended June 30, 2015
Net revenue	$	97,171	$	164,959
Gross profit	29,868		48,651
Operating income	10,537		12,076
Net income	$	6,763	$	7,533


⁽¹⁾	The results of operations for FOX for the three and six months ended June 30, 2014 are included in the results of operations of the Company in the accompanying condensed consolidation statements of income as the Company did not begin accounting for FOX as an equity method investment until July 10, 2014, the date that the Company's ceased holding a majority ownership interest in FOX.

Note F — Property, Plant and Equipment and Inventory

Property, plant and equipment

Property, plant and equipment is comprised of the following at June 30, 2015 and December 31, 2014 (in thousands):



	June 30, 2015			December 31, 2014
Machinery and equipment	$	136,155		$	127,035
Office furniture, computers and software	14,372			12,322
Leasehold improvements	9,305			10,419
Buildings and land	23,733			25,271
	183,565			175,047
Less: accumulated depreciation	(72,044		)	(59,176		)
Total	$	111,521		$	115,871

Depreciation expense was $6.3 million and $12.8 million for the three and six months ended June 30, 2015, and $4.6 million and $9.5 million for the three and six months ended June 30, 2014, respectively.

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Inventory

Inventory is comprised of the following at June 30, 2015 and December 31, 2014 (in thousands):



	June 30, 2015			December 31, 2014
Raw materials and supplies	$	56,586		$	49,727
Work-in-process	12,870			10,632
Finished goods	63,700			59,442
Less: obsolescence reserve	(7,924		)	(8,587		)
Total	$	125,232		$	111,214

Note G — Goodwill and Other Intangible Assets

As a result of acquisitions in prior years, the Company has significant intangible assets on its balance sheet that include goodwill and indefinite-lived intangibles (primarily trade names). Goodwill represents the difference between purchase cost and the fair value of net assets acquired in business acquisitions. Indefinite lived intangible assets are not amortized unless their useful life is determined to be finite. Long-lived intangible assets are subject to amortization using the straight-line method. The Company’s goodwill and indefinite-lived intangibles are tested and reviewed for impairment annually as of March 31st or more frequently if facts and circumstances warrant by comparing the fair value of each reporting unit to its carrying value. Each of the Company’s businesses represents a reporting unit, except Arnold, which comprises three reporting units.

Goodwill

2015 Interim goodwill impairment testing

In January 2015, one of Tridien's largest customer's informed the company that they would not renew their existing purchase agreement when it expires on September 30, 2015. This customer represented 20% of Tridien's sales in 2014. The expected lost sales and net income were significant enough to trigger an interim goodwill and indefinite-lived intangible asset impairment analysis. The result of the first step of the impairment test indicated that the fair value of Tridien was less than its carrying value; therefore, it was necessary to perform the second step of the impairment test. The Company estimated the fair value of the Tridien reporting unit using a weighted average of an income and market approach. The income approach was based on the present value of expected future cash flows, including terminal value, utilizing a market-based weighted average cost of capital ("WACC") of 15.7%. The market approach was based on earnings multiple data and guideline public companies. Based on the second step of the impairment test, the Company concluded on a preliminary basis during the quarter ended March 31, 2015 that the implied fair value of goodwill for Tridien was less than its carrying amount, resulting in impairment of the carrying amount of Tridien's goodwill of $8.9 million as of January 31, 2015. The Company completed the interim goodwill impairment testing of Tridien during the three months ended June 30, 2015 and recorded additional impairment expense of $0.2 million related to the Tridien technology and patent intangible assets.

2015 Annual goodwill impairment testing

The Company uses a qualitative approach to test goodwill for impairment by first assessing qualitative factors to determine whether it is more-likely than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step evaluation including, in part, the macroeconomic environment, industry and market specific conditions, financial performance, operating costs and cost impacts, as well as issues or events specific to the reporting unit. The Company evaluated the qualitative factors of each reporting unit to determine if the fair values of the reporting units exceed their respective carrying values for the 2015 annual goodwill impairment testing. The Company determined that Liberty and two of Arnold’s three reporting units, Permanent Magnets and Assemblies ("PMAG") and Flexible Magnets ("Flexmag"), required further quantitative testing (Step 1) since the Company could not conclude that the fair value of the Liberty and the two Arnold reporting units exceeded their carrying values based solely on qualitative factors. Results of the quantitative analysis indicated that the fair value of these reporting units exceeds their carrying value.

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A reconciliation of the change in the carrying value of goodwill for the six months ended June 30, 2015 and the year ended December 31, 2014, is as follows (in thousands):



	Six months ended June 30, 2015			Year ended December 31, 2014
Beginning balance:
Goodwill	$	412,083		$	299,514
Accumulated impairment losses	(52,903		)	(52,903		)
	359,180			246,611
Impairment losses ⁽¹⁾	(8,928		)	—
Acquisition of businesses ⁽²⁾	—			157,864
Adjustments to purchase accounting ⁽³⁾	706			—
Deconsolidation of subsidiary ⁽⁴⁾	—			(45,295		)
Total adjustments	(8,222		)	112,569
Ending balance:
Goodwill	412,789			412,083
Accumulated impairment losses	(61,831		)	(52,903		)
	$	350,958		$	359,180


⁽¹⁾	Impairment loss relates to the impairment of the Tridien goodwill during the quarter ended March 31, 2015.

⁽²⁾

Acquisition of businesses relates to the acquisition of Clean Earth in August 2014, SternoCandleLamp in October 2014, the add-on acquisition of AES by Clean Earth in December 2014, and the add-on acquisition of Sport Truck by FOX in March 2014. The $12.0 million of goodwill from the Sport Truck acquisition is included in the amount of $45.3 million that was deconsolidated during the year ended December 31, 2014.

⁽³⁾

The $0.7 million in purchase accounting adjustments relate to adjustments made to the final purchase price allocation for Clean Earth during the first quarter of 2015 to record deferred tax amounts based on the state tax rate in effect for the state in which each of the intangible assets is utilized ($1.0 million), and adjustments to the purchase price allocation of AES during the first and second quarter of 2015 ($0.3 million, including the final settlement of working capital of $0.5 million received by Clean Earth).


⁽⁴⁾	As a result of the sale of the shares by the Company in the FOX Secondary Offering, the Company’s ownership interest in FOX decreased to approximately 41%, which resulted in the deconsolidation of the FOX operating segment in the Company’s consolidated financial statements effective July 10, 2014.

Other intangible assets

2015 Annual indefinite lived impairment testing

The Company uses a qualitative approach to test indefinite lived intangible assets for impairment by first assessing qualitative factors to determine whether it is more-likely-than-not that the fair value of an indefinite lived intangible asset is impaired as a basis for determining whether it is necessary to perform quantitative impairment testing. The Company evaluated the qualitative factors of each reporting unit that maintains indefinite lived intangible assets in connection with the annual impairment testing for 2015. Results of the qualitative analysis indicate that the carrying value of the Company’s indefinite lived intangible assets did not exceed their fair value.

2015 long-lived asset impairment

The Company evaluates long-lived assets for potential impairment whenever events occur or circumstances indicate that the carrying amount of the assets may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. As noted above, Tridien's expected loss of a large customer at the end of the third quarter of 2015 triggered an interim goodwill impairment which resulted in Tridien recognizing impairment of both the goodwill and the technology and patent intangible asset. The Company completed the interim impairment testing during the second quarter of 2015 and recognized $0.2 million of impairment expense

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related to the technology and patent intangible asset during the three months ended June 30, 2015 in the condensed consolidated statements of operations.

Other intangible assets are comprised of the following at June 30, 2015 and December 31, 2014 (in thousands):



	June 30, 2015			December 31, 2014			Weighted Average Useful Lives
Customer relationships	$	266,975		$	266,976		12
Technology and patents	56,494			56,731			8
Trade names, subject to amortization ⁽¹⁾	24,722			7,595			17
Licensing and non-compete agreements	7,856			7,856			5
Permits and airspace	98,419			98,406			13
Distributor relations and other	606			606			5
	455,072			438,170
Accumulated amortization:
Customer relationships	(86,809		)	(75,813		)
Technology and patents	(30,212		)	(26,906		)
Trade names, subject to amortization	(3,974		)	(3,763		)
Licensing and non-compete agreements	(7,695		)	(7,499		)
Permits and airspace	(7,822		)	(3,104		)
Distributor relations and other	(606		)	(606		)
Total accumulated amortization	(137,118		)	(117,691		)
Trade names, not subject to amortization ⁽¹⁾	149,672			166,741
Total intangibles, net	$	467,626		$	487,220

⁽¹⁾ The trade name for Clean Earth was determined to be subject to amortization, resulting in a reclass from trade names not subject to amortization during the first quarter of 2015 as part of the finalization of the purchase price allocation for Clean Earth.

Amortization expense related to intangible assets was $9.4 million and $19.4 million for the three and six months ended June 30, 2015, respectively, and $7.7 million and $15.0 million for the three and six months ended June 30, 2014, respectively. Estimated charges to amortization expense of intangible assets over the next five years, is as follows (in thousands):



July 1, 2015 through Dec. 31, 2015	$	20,294
2016	38,368
2017	35,451
2018	32,974
2019	31,556
	$	158,643

Note H — Debt

2014 Credit Agreement

On June 6, 2014, the Company obtained a $725 million credit facility from a group of lenders (the “2014 Credit Facility”) led by Bank of America N.A. as Administrative Agent. The 2014 Credit Facility provides for (i) a revolving credit facility of $400 million (as amended from time to time, the “2014 Revolving Credit Facility”) and (ii) a $325 million term loan (the “2014 Term Loan Facility”). The 2014 Credit Facility permits the Company to increase the 2014 Revolving Credit Facility commitment and/ or obtain additional term loans in an aggregate of up to $200 million. The 2014 Credit Facility is secured by all of the assets of the Company, including all of its equity interests in, and loans to, its consolidated subsidiaries. The Company amended the 2014 Credit Facility in June 2015, primarily to allow for intercompany loans to, and the acquisition of, Canadian-based companies on an unsecured basis, and to modify provisions that would allows for early termination of a "Leverage Increase Period," thereby

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providing additional flexibility as to the timing of subsequent acquisitions. The Company incurred additional debt issuance costs of approximately $0.3 million in connection with the amendment that was recorded as deferred debt issuance costs and will be amortized over the remaining term of the 2014 Credit Facility.

2014 Revolving Credit Facility

The 2014 Revolving Credit Facility will become due in June 2019. The Company can borrow, prepay and reborrow principal under the 2014 Revolving Credit Facility from time to time during its term. Advances under the 2014 Revolving Credit Facility can be either LIBOR rate loans or base rate loans. LIBOR rate revolving loans bear interest at a rate per annum equal to the London Interbank Offered Rate (the “LIBOR Rate”) plus a margin ranging from 2.00% to 2.75% based on the ratio of consolidated net indebtedness to adjusted consolidated earnings before interest expense, tax expense and depreciation and amortization expenses (the “Consolidated Leverage Ratio”). Base rate revolving loans bear interest at a fluctuating rate per annum equal to the greatest of (i) the prime rate of interest, or (ii) the Federal Funds Rate plus 0.50% (the “Base Rate”), plus a margin ranging from 1.00% to 1.75% based upon the Consolidated Leverage Ratio.

2014 Term Loan Facility

The 2014 Term Loan Facility expires in June 2021 and requires quarterly payments of approximately $0.81 million that commenced September 30, 2014, with a final payment of all remaining principal and interest due on June 6, 2021. The 2014 Term Loan Facility was issued at an original issue discount of 99.5% of par value and bears interest at either the applicable LIBOR Rate plus 3.25% per annum, or Base Rate plus 2.25% per annum. The LIBOR Rate applicable to both base rate loans and LIBOR rate loans shall in no event be less than 1.00% at any time.

Use of Proceeds

The proceeds of the 2014 Term Loan Facility and advances under the 2014 Revolving Credit Facility were/will be used to (i) refinance existing indebtedness of the Company, (ii) pay fees and expense, (iii) fund acquisitions of additional businesses, (iv) fund working capital needs and (v) to fund permitted distributions. The Company used approximately $290.0 million of the 2014 Term Loan Facility proceeds to pay all amounts outstanding under the 2011 Credit Agreement and to pay the closing costs. In addition, approximately $1.2 million of the 2014 Revolving Credit Facility commitment was utilized in connection with the issuance of letters of credit.

Other

The 2014 Credit Facility provides for sub-facilities under the 2014 Revolving Credit Facility pursuant to which an aggregate amount of up to $100.0 million in letters of credit may be issued, as well as swing line loans of up to $25.0 million outstanding at one time. The issuance of such letters of credit and the making of any swing line loan reduces the amount available under the 2014 Revolving Credit Facility. The Company will pay (i) commitment fees on the unused portion of the 2014 Revolving Credit Facility ranging from 0.45% to 0.60% per annum based on its Consolidated Leverage Ratio, (ii) quarterly letter of credit fees, and (iii) administrative and agency fees.

Debt Issuance Costs

In connection with entering into the 2014 Credit Facility in which the loan syndication consisted of previous members of the syndicate under the 2011 Credit Facility who either maintained or increased their position as well as new syndication members, the debt issuance costs associated with the 2011 Credit Facility and the 2014 Credit Facility have been classified as either debt modification costs which have been capitalized and will be amortized over the term of the 2014 Credit Facility, or debt extinguishment costs which have been recorded as an expense in the accompanying condensed consolidated statement of operations. The Company paid debt issuance costs of $7.3 million in connection with the 2014 Credit Facility (of which $0.2 million was expensed as debt modification and extinguishment costs and $7.1 million is being amortized over the term of the related debt in the 2014 Credit Facility) and recorded additional debt modification and extinguishment costs of $2.1 million to write-off previously capitalized debt issuance costs.

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2011 Credit Agreement

On October 27, 2011, the Company entered into the 2011 Credit Facility with a group of lenders led by TD Securities for a $515 million credit facility, with an optional $135 million increase (the "2011 Credit Facility"). The 2011 Credit Facility provided for (i) a revolving line of credit of $290 million which was subsequently increased to $320 million (the "2011 Revolving Credit Facility"), and (ii) a $225 million term loan which was subsequently increased to $279 million (the "2011 Term Loan Facility"). The 2011 Revolving Credit Facility was set to mature in October 2016, and the 2011 Term Loan Facility required quarterly payments of approximately $0.71 million, with the final payment of all remaining outstanding principle and interest due in October 2017. The Company was required to pay commitment fees of 1% per annum of the unused portion of the 2011 Revolving Credit Facility. The 2011 Credit Facility was terminated in June 2014.

The following table provides the Company’s debt holdings at June 30, 2015 and December 31, 2014 (in thousands):



	June 30, 2015			December 31, 2014
Revolving Credit Facility	$	189,000		$	169,725
Term Loan	321,750			323,375
Original issue discount	(3,968		)	(4,303		)
Total debt	$	506,782		$	488,797
Less: Current portion, term loan facilities	(3,250		)	(3,250		)
Long term debt	$	503,532		$	485,547

Net availability under the 2014 Revolving Credit Facility was approximately $206.4 million at June 30, 2015. Letters of credit outstanding at June 30, 2015 totaled approximately $4.6 million. At June 30, 2015, the Company was in compliance with all covenants as defined in the 2014 Credit Facility.

Note I — Derivative Instruments and Hedging Activities

On September 16, 2014, the Company purchased an interest rate swap (“New Swap”) with a notional amount of $220 million. The New Swap is effective April 1, 2016 through June 6, 2021, the termination date of the 2014 Term Loan. The agreement requires the Company to pay interest on the notional amount at the rate of 2.97% in exchange for the three-month LIBOR rate. At June 30, 2015 and December 31, 2014, this Swap had a fair value loss of $9.2 million and $7.4 million, respectively, principally reflecting the present value of future payments and receipts under the agreement.

On October 31, 2011, the Company purchased a three-year interest rate swap (the “Swap”) with a notional amount of $200 million effective January 1, 2014 through March 31, 2016. The agreement requires the Company to pay interest on the notional amount at the rate of 2.49% in exchange for the three-month LIBOR rate, with a floor of 1.5%. At June 30, 2015 and December 31, 2014, the Swap had a fair value loss of $1.5 million and $2.5 million, respectively.

At June 30, 2015 the Company's interest rate swaps had a fair value loss of $10.7 million, of which $1.5 million was included in current liabilities and $9.2 million was included in other non-current liabilities in the condensed consolidated balance sheet, with its periodic mark-to-market value reflected as a component of interest expense.

The Company did not elect hedge accounting for the above derivative transactions and as a result, periodic mark-to-market changes in fair value are reflected as a component of interest expense in the consolidated statement of operations.

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Note J — Fair Value Measurement

The following table provides the assets and liabilities carried at fair value measured on a recurring basis at June 30, 2015 and December 31, 2014 (in thousands):



	Fair Value Measurements at June 30, 2015
	Carrying Value			Level 1		Level 2			Level 3
Assets:
Equity method investment - FOX	$	242,948		$	242,948	$	—		$	—
Liabilities:
Call option of noncontrolling shareholder ⁽¹⁾	(25		)	—		—			(25		)
Put option of noncontrolling shareholders ⁽²⁾	(50		)	—		—			(50		)
Interest rate swaps	(10,700		)	—		(10,700		)	—
Total recorded at fair value	$	232,173		$	242,948	$	(10,700	)	$	(75	)


⁽¹⁾	Represents a noncontrolling shareholder’s call option to purchase additional common stock in Tridien.


⁽²⁾	Represents put options issued to noncontrolling shareholders in connection with the Liberty acquisition.



	Fair Value Measurements at December 31, 2014
	Carrying Value			Level 1		Level 2			Level 3
Assets:
Equity method investment - FOX	$	245,214		$	245,214	$	—		$	—
Liabilities:
Call option of noncontrolling shareholder ⁽¹⁾	(25		)	—		—			(25		)
Put option of noncontrolling shareholders ⁽²⁾	(50		)	—		—			(50		)
Interest rate swaps	(9,828		)	—		(9,828		)	—
Total recorded at fair value	$	235,311		$	245,214	$	(9,828	)	$	(75	)

Reconciliations of the change in the carrying value of the Level 3 fair value measurements from January 1, 2015 through June 30, 2015 and from January 1, 2014 through June 30, 2014 are as follows (in thousands):



	2015			2014
Balance at January 1	$	(75	)	$	(75	)
Contingent consideration - Sport Truck ⁽¹⁾	—			(19,035		)
Balance at March 31	$	(75	)	$	(19,110	)
Balance at June 30	$	(75	)	$	(19,110	)


⁽¹⁾	As a result of the sale of the shares by the Company in the FOX Secondary Offering, the Company’s ownership interest in FOX decreased to approximately 41%, which resulted in the deconsolidation of the FOX operating segment in the Company’s consolidated financial statements effective July 10, 2014.

Valuation Techniques

The Company has not changed its valuation techniques in measuring the fair value of any of its other financial assets and liabilities during the period. For details of the Company’s fair value measurement policies under the fair value hierarchy, refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

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2014 Term Loan

At June 30, 2015, the carrying value of the principal under the Company’s outstanding 2014 Term Loan, including the current portion, was $321.8 million, which approximates fair value because it has a variable interest rate that reflects market changes in interest rates and changes in the Company's net leverage ratio. The estimated fair value of the outstanding 2014 Term Loan is based on quoted market prices for similar debt issues and is, therefore, classified as Level 2 in the fair value hierarchy.

Nonrecurring Fair Value Measurements

The following table provides the assets carried at fair value measured on a non-recurring basis as of June 30, 2015. There were no assets carried at fair value measured on a non-recurring basis as of December 31, 2014.



									Expense
	Fair Value Measurements at June 30, 2015								Three months ended		Six months ended
(in thousands)	Carrying Value		Level 1		Level 2		Level 3		June 30, 2015		June 30, 2015

Technology ⁽¹⁾	$	313	$	—	$	—	$	313	$	237	$	237
Goodwill ⁽¹⁾	$	7,834	$	—	$	—	$	7,834	$	21	$	8,928

(1) Represents the fair value of the respective assets at the Tridien business segment subsequent to the goodwill and long-lived asset impairment charge recognized during the three and six months ended June 30, 2015. Refer to "Note G - Goodwill and Other Intangible Assets" for further discussion regarding the impairment and valuation techniques applied.

Note K — Stockholders’ Equity

Trust Shares

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

Allocation Interests

The Allocation Interests represent the original equity interest in the Company. The holders of the Allocation Interests (“Holders”) are entitled to receive distributions pursuant to a profit allocation formula upon the occurrence of certain events. The distributions of the profit allocation is paid upon the occurrence of the sale of a material amount of capital stock or assets of one of the Company’s businesses (“Sale Event”) or, at the option of the Holders, at each five year anniversary date of the acquisition of one of the Company’s businesses (“Holding Event”). The Manager, as the original holder of the Allocation Interests, previously had the right to cause the Company to purchase the Allocation Interests upon termination of the MSA in accordance with a Supplemental Put Agreement. On July 1, 2013, the Company and the Manager amended the MSA to provide for certain modifications related to the Manager’s registration as an investment advisor under the Investment Advisor’s Act of 1940, as amended (the “Advisor’s Act”). In connection with the amendment resulting from the Managers’ registration as an investment advisor under the Advisor’s Act, the Company and the Manager agreed to terminate the Supplemental Put Agreement. The Company historically recorded the obligation associated with the Supplemental Put agreement as a liability that represented the amount the Company would have to pay to physically settle the purchase of the Allocation Interests upon termination of the MSA. As a result of the termination of the Supplemental Put Agreement, the Company currently records distributions of the profit allocation to the Holders upon occurrence of a Sale Event or Holding Event as dividends declared on Allocation Interests to stockholders’ equity when they are approved by the Company’s board of directors.

Earnings per share

Prior to the termination of the Supplemental Put Agreement, basic and diluted earnings per share attributable to Holdings were calculated on a weighted average basis. Since the termination of the Supplemental Put Agreement, basic and diluted earnings per share is calculated using the two-class method which requires the Company to allocate participating securities that have rights to earnings that otherwise would have been available only to Trust shareholders as a separate class of securities in calculating earnings per share. The Allocation Interests are considered participating securities that contain participating rights to receive profit allocations upon the occurrence of a Holding Event or Sale Event. The calculation of basic and diluted earnings per share for the three and

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six months ended June 30, 2015 and 2014 reflects the incremental increase during the period in the profit allocation distribution to Holders related to Holding Events.

Basic and diluted earnings per share for the three and six months ended June 30, 2015 and 2014 is calculated as follows:



	Three months ended June 30,				Six months ended June 30,
	2015		2014		2015			2014
Net income (loss) attributable to Holdings	$	24,457	$	5,719	$	(445	)	$	10,378
Less: Effect of contribution based profit - Holding Event	2,951		573		2,779			1,196
Net income from Holdings attributable to Trust shares	$	21,506	$	5,146	$	(3,224	)	$	9,182
Basic and diluted weighted average shares outstanding	54,300		48,300		54,300			48,300
Net income (loss) per share - basic and fully diluted	$	0.40	$	0.11	$	(0.06	)	$	0.19

Distributions


•	On January 29, 2015, the Company paid a distribution of $0.36 per share to holders of record as of January 22, 2015. This distribution was declared on January 8, 2015.


•	On April 29, 2015, the Company paid a distribution of $0.36 per share to holders of record as of April 22, 2015. This distribution was declared on April 9, 2015.


•	On July 29, 2015, the Company paid a distribution of $0.36 per share to holders of record as of July 22, 2015. This distribution was declared on July 9, 2015.

Note L — Warranties

The Company’s CamelBak, Ergobaby, Liberty and Tridien operating segments estimate their exposure to warranty claims based on both current and historical product sales data and warranty costs incurred. The Company assesses the adequacy of its recorded warranty liability quarterly and adjusts the amount as necessary. A reconciliation of the change in the carrying value of the Company’s warranty liability for the six months ended June 30, 2015 and the year ended December 31, 2014 is as follows (in thousands):



	Six months ended June 30, 2015			Year ended December 31, 2014
Warranty liability:
Beginning balance	$	2,540		$	5,815
Accrual	497			3,025
Warranty payments	(196		)	(2,420		)
Deconsolidation of subsidiary	—			(3,880		)
Ending balance	$	2,841		$	2,540

Note M — Noncontrolling Interest

Noncontrolling interest represents the portion of the Company’s majority-owned subsidiary’s net income (loss) and equity that is owned by noncontrolling shareholders. The following tables reflect the Company’s ownership percentage of its majority owned operating segments and related noncontrolling interest balances as of June 30, 2015 and December 31, 2014:

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	% Ownership ⁽¹⁾ June 30, 2015		% Ownership ⁽¹⁾ December 31, 2014
	Primary	Fully Diluted	Primary	Fully Diluted
CamelBak	89.9	79.7	89.9	79.7
Ergobaby	81.0	74.2	81.0	74.3
Liberty	96.2	84.6	96.2	84.8
ACI	69.4	69.3	69.4	69.3
American Furniture	99.9	89.7	99.9	99.9
Arnold Magnetics	96.7	87.3	96.7	87.5
Clean Earth	97.5	87.6	97.9	86.2
SternoCandleLamp	100.0	90.3	100.0	91.7
Tridien	81.3	65.4	81.3	65.4


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



	Noncontrolling Interest Balances
(in thousands)	June 30, 2015		December 31, 2014
CamelBak	$	15,929	$	14,932
Ergobaby	16,182		14,783
Liberty	2,726		2,547
ACI	2,537		790
American Furniture	276		260
Arnold Magnetics	2,016		1,950
Clean Earth	3,674		2,672
SternoCandleLamp	375		125
Tridien	1,204		2,744
Allocation Interests	100		100
	$	45,019	$	40,903

Note N — Income taxes

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

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

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The reconciliation between the Federal Statutory Rate and the effective income tax rate for the six months ended June 30, 2015 and 2014 are as follows:



	Six months ended June 30,
	2015		2014
United States Federal Statutory Rate	35.0	%	35.0