Compass Diversified Holdings

Previous wording

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 Third Amended and Restated Trust Agreement, dated as of August 3, 2021 (as amended and restated, the "Trust Agreement"), the Trust is sole owner of 100% of the Trust Interests (as defined in the Company's Sixth Amended and Restated Operating Agreement, dated as of August 3, 2021 (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. 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.

Current wording

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.

Previous wording

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.

Current wording

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 Board 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.

Previous wording

From May 16, 2006 through December 31, 2023, we purchased twenty-three businesses (each of our businesses is treated as a separate operating segment) and disposed of thirteen businesses. The tables below reflect summarized information relating to our acquisitions and dispositions from the date of our IPO through December 31, 2023 (in thousands):

Current wording

From May 16, 2006 through December 31, 2024, we purchased twenty-four businesses (each of our businesses is treated as a separate operating segment) and disposed of fourteen businesses. The tables below reflect summarized information relating to our acquisitions and dispositions from the date of our IPO through December 31, 2024 (in thousands):

Previous wording

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

Current wording

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

Previous wording

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 interest 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.

Current wording

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 the Company, which represented our remaining interest 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.

Previous wording

Year ended December 31, 2023 compared to the Pro forma Year ended December 31, 2022

Current wording

On April 30, 2024, Velocity Outdoor entered into a stock purchase agreement to sell Crosman Corporation ("Crosman"), its airgun product division, to Daisy Manufacturing Company, for an enterprise value of approximately $63 million. The sale was completed on the same day. The Company recorded a loss of $24.2 million on the sale of Crosman in the year ended December 31, 2024. Velocity received net proceeds of approximately $61.9 million related to the sale of Crosman, which was used to repay amounts outstanding under its intercompany credit agreement. The results of operation of Crosman are included in the accompanying financial statements through the date of sale.

Previous wording

Acquisition of The Honey Pot

Current wording

Acquisition of The Honey Pot Co.

Previous wording

On January 31, 2024 (the "Closing Date"), the LLC, through its newly formed acquisition subsidiaries, THP Topco, Inc., a Delaware corporation (“THP Topco”) and THP Intermediate, Inc., a Delaware corporation (“THP Buyer”), acquired The Honey Pot Company Holdings, LLC (“THP”) and certain of its affiliated entities pursuant to a Merger and Stock Purchase Agreement (the “THP Purchase Agreement”) dated January 14, 2024 by and among THP Buyer, THP, VMG Honey Pot Blocker, Inc. (“Blocker I”), NVB1, Inc. (“Blocker II”), VMG Tax-Exempt IV, L.P. (“Blocker I Seller”), New Voices Fund, LP (“Blocker II Seller”), THP Merger Sub, LLC (“THP Merger Sub”), VMG Honey Pot Holdings, LLC, as the Sellers’ Representative, and certain remaining equity holders of THP (the “THP Sellers”, together with Blocker I Seller and Blocker II Seller, each a “Seller” and collectively, the “Sellers”). Pursuant to the THP Purchase Agreement, subsequent to certain internal reorganizations, THP Buyer acquired all of the issued and outstanding equity of Blocker I and Blocker II and, thereafter, THP Merger Sub merged with and into THP (the “THP Merger”), with THP surviving such that the separate existence of THP Merger Sub ceased, with THP surviving the THP Merger as a wholly-owned, indirect subsidiary of the THP Topco. THP is the parent company of The Honey Pot Company (DE), LLC (“The Honey Pot Co.”).

Current wording

On January 31, 2024, the LLC, through its newly formed acquisition subsidiaries, THP Topco, Inc., a Delaware corporation (“THP Topco”) and THP Intermediate, Inc., a Delaware corporation (“THP Buyer”), acquired THP and certain of its affiliated entities pursuant to a Merger and Stock Purchase Agreement (the “THP Purchase Agreement”) dated January 14, 2024 by and among THP Buyer, THP, VMG Honey Pot Blocker, Inc. (“Blocker I”), NVB1, Inc. (“Blocker II”), VMG Tax-Exempt IV, L.P., New Voices Fund, LP, THP Merger Sub, LLC (“THP Merger Sub”), VMG Honey Pot Holdings, LLC, as the Sellers’ Representative, and certain remaining equity holders of THP. Pursuant to the THP Purchase Agreement, subsequent to certain internal reorganizations, THP Buyer acquired all of the issued and outstanding equity of Blocker I and Blocker II and, thereafter, THP Merger Sub merged with and into THP (the “THP Merger”), such that the separate existence of THP Merger Sub ceased, with THP surviving the THP Merger as a wholly-owned, indirect subsidiary of THP Topco. THP Topco is the parent company of The Honey Pot Company (DE), LLC, the operating entity of The Honey Pot Co. business.

Previous wording

The Company paid a purchase price of approximately $380 million, before working capital and certain other adjustments, at the closing (the “THP Purchase Price”). The Company funded the THP Purchase Price with cash on hand. Certain minority equity holders of THP executed agreements pursuant to which they contributed a portion of their THP equity (the “THP Rollover Equity”) to THP Topco in exchange for THP Topco common stock. THP Topco contributed the THP Rollover Equity to THP Buyer. Certain other members of The Honey Pot Co. management team also contributed cash in exchange for equity in THP Topco. The Company directly owns approximately 85% of THP Topco, which in turn indirectly owns all of the issued and outstanding equity interests of THP and The Honey Pot Co. Concurrent with the Closing, the Company provided a credit facility to THP Buyer, THP and The Honey Pot Co., as borrowers (the “THP Credit Agreement”), pursuant to which a secured revolving loan commitment and secured term loans were made available to Buyer, THP and The Honey Pot Co. (collectively, the “Borrowers”). The initial amount outstanding under these facilities on the Closing Date was approxima tely $110 million.

Current wording

The Company purchased The Honey Pot Co. for a total enterprise value of $380 million, before working capital and certain other adjustments (the “THP Purchase Price”). The Company funded the THP Purchase Price with cash on hand. Certain minority equity holders of THP executed agreements pursuant to which they contributed a portion of their THP equity (the “THP Rollover Equity”) to THP Topco in exchange for THP Topco common stock. THP Topco contributed the THP Rollover Equity to THP Buyer. Certain other members of The Honey Pot Co. management team also contributed cash in exchange for equity in THP Topco. Immediately subsequent to the acquisition, the LLC owned approximately 85% of the outstanding equity of THP Topco.

Previous wording

The macroeconomic environment remains dynamic as global macroeconomic trends, including inflationary pressures and rising interest rates, are impacting consumer spending behavior. We expect changing market conditions and continued inflationary pressures to continue to impact consumer spending, particularly for discretionary items purchased by low and middle income consumers, even as overall consumer sentiment among other income brackets appears to be improving going into 2024. While overall inflation increased at a slower pace domestically in 2023, prices remain significantly elevated as compared to the pre-COVID-19 environment, and inflation rates remain above central banks' targets. We continue to experience modest inflationary cost increases in our materials and rising labor costs, particularly at our businesses where hourly employees comprise a larger part of the workforce. We expect that low unemployment rates and increasing wage and benefit costs will continue to impact margins at our businesses in 2024. Certain locales that our businesses operate in have also significantly increased the minimum wage over the past two years with more increases scheduled in coming years, which adds additional wage pressure to the rates we pay hourly workers in these locales.

Current wording

The macroeconomic environment remains dynamic as global macroeconomic trends, including inflationary pressures and elevated interest rates, are impacting consumer spending behavior. We expect uncertainty regarding changing market conditions, inflationary pressures and interest rates to impact consumer spending, particularly for discretionary items purchased by low and middle income consumers, even as overall consumer sentiment among other income brackets improves. Overall inflation has increased at a slower pace domestically in 2024, but prices remain significantly elevated as compared to the pre-COVID-19 environment, and inflation rates remain above central banks' targets. While the Federal Reserve has cut interest rates several times in the past year, it continues to quantitatively tighten the money supply to combat inflation. We continue to experience rising labor costs, particularly at our businesses where hourly employees comprise a larger part of the workforce as the labor market remains historically tight. We expect that increasing benefit costs in particular will continue to have an impact on margins at our businesses in 2025. Certain locales that our businesses operate in have also significantly increased the minimum wage over the past two years with more increases scheduled in coming years, which adds additional wage pressure to the rates we pay hourly workers in these locales.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

We acquired PrimaLoft in July 2022 and Lugano Diamonds in September 2021. In the following results of operations, we provide (i) our actual Consolidated Results of Operations for the years ended December 31, 2023, 2022 and 2021, 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, 2023, 2022 and 2021, where all years presented include relevant pro-forma adjustments for pre-acquisition periods and explanations where applicable. For the 2022 acquisition of PrimaLoft, the pro forma results of operations have been prepared as if we purchased this business on January 1, 2021. For the 2021 acquisition of Lugano Diamonds, the pro forma results of operations have been prepared as if we purchased this business on January 1, 2021. 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.

Current wording

We acquired The Honey Pot Co. in January 2024 and PrimaLoft in July 2022. In the following results of operations, we provide (i) our actual Consolidated Results of Operations for the years ended December 31, 2024, 2023 and 2022, 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, 2024, 2023 and 2022, where all years presented include relevant pro-forma adjustments for pre-acquisition periods and explanations where applicable. For the 2024 acquisition of The Honey Pot Co., the pro forma results of operations have been prepared as if we purchased this business on January 1, 2023. For the 2022 acquisition of PrimaLoft, the pro forma results of operations have been prepared as if we purchased this business on January 1, 2022. 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.

Previous wording

2022 and our PrimaLoft business contributed $11.0 million of the increase in cost of revenues for 2022. We also saw notable increases in cost of revenues at 5.11 ($19.5 million increase), BOA ($17.7 million increase), Altor ($66.9 million increase), and Arnold ($9.0 million increase) that correspond to the revenue increases noted above. We also saw a decrease in cost of revenues at Velocity ($15.7 million decrease) and Sterno ($18.4 million decrease) that corresponded to the decrease in revenue noted above. Gross profit as a percentage of net revenues was approximately 39.0% in the year ended December 31, 2022 compared to 38.4% in 2021. The increase in gross profit as a percentage of net sales in the year ended December 31, 2022 as compared to the year ended December 31, 2021 is primarily attributable to the acquisition of Lugano in September 2021 and the implementation of price increases at most of our subsidiary businesses in excess of rising costs. Most of our subsidiary businesses continue to experience increased material, labor and transportation costs. The gross margins at both our branded consumer businesses and our industrial businesses have been impacted by global supply chain constraints and inflation that is leading to pressure on revenue and costs. Refer to "Results of Operations - Our Businesses" for a more detailed analysis of gross profit by business segment.

Current wording

On a consolidated basis, cost of revenues increased approximately $65.9 million during the year ended December 31, 2024, compared to the corresponding period in 2023, primarily as a result of the increase in net revenues at certain of our subsidiaries. We saw notable increases in cost of revenues at BOA ($8.8 million increase), Lugano ($49.7 million increase) and Arnold ($8.9 million increase) that correspond to the revenue increases noted above. We also saw a decrease in cost of revenues at Velocity ($57.0 million decrease) and Sterno ($12.1 million decrease) that corresponded to the decrease in revenue noted above. The Honey Pot Co. had cost of revenues of $53.3 million in 2024 post-acquisition. Gross profit as a percentage of net revenues was approximately 45.5% in the year ended December 31, 2024 compared to 42.4% in the year ended December 31, 2023. The increase in gross profit as a percentage of net revenues in the year ended December 31, 2024 as compared to the year ended December 31, 2023 is primarily attributable to the mix of products sold, with increases in net revenue at our higher margin businesses, particularly Lugano. Our branded consumer businesses had gross profit as a percentage of net revenuesof 54.7% in the 2024 as compared to 51.0% in 2023, while our industrial businesses had gross profit as a percentage of net revenues of 27.1% in 2024 as compared to 27.7% in 2023. Refer to "Part 2, Item 7 Management’ Discussion and Analysis of Financial Condition and Results of Operations, "Results of Operations - Our Businesses" for a more detailed analysis of gross profit by business segment.

Previous wording

Consolidated selling, general and administrative expense increased approximately $66.0 million during the year ended December 31, 2022, from $418.4 million in the year ended December 31, 2021 to $484.4 million in the year ended December 31, 2022. A portion of the increase in the year ended December 31, 2022 is due to our Lugano acquisition in September 2021 ($28.0 million of the increase) and our PrimaLoft acquisition in July 2022 ($17.5 million of the increase, of which $5.7 million was attributable to acquisition costs). We also saw an increase in selling, general and administrative expenses at Altor related to the add-on acquisition that occurred in the fourth quarter of 2021, as well as increased investment in marketing and headcount at several of our subsidiary businesses with increased revenues. Refer to "Results of Operations - Business Segments" for a more detailed analysis of selling, general and administrative expense by subsidiary business segment. At the corporate level, general and administrative expense was $16.3 million in 2022 and $17.3 million in 2021. Corporate level general and administrative expense during 2021 included non-recurring professional fees associated with our election for the Trust to be treated as a corporation for U.S. federal income tax purposes.

Current wording

Consolidated selling, general and administrative expense increased approximately $85.5 million during the year ended December 31, 2024, compared to the corresponding period in 2023. We saw increases in selling, general and administrative expenses at several of our consumer brands due to increased investment in marketing and headcount, and increases in employee compensation Lugano ($29.6 million of the increase). The Honey Pot Co. had selling, general and administrative expense of $37.7 million in the 2024 post-acquisition period, of which $3.5 million was transaction costs and $2.6 million was integration service fees associated with the acquisition. Our Arnold operating segment also saw a notable increase in selling, general and administrative costs in 2024 ($10.3 million increase) as compared to the prior year due to non-recurring costs incurred associated with the move of two of their facilities in the United States. Refer to "Results of Operations - Business Segments" for a more detailed analysis of selling, general and administrative expense by subsidiary business segment. At the corporate level, general and administrative expense was $19.7 million in 2024 and $18.2 million in 2023, an increase of $1.5 million. The increase in corporate general and administrative expense in 2024 related to severance paid to our former chief financial officer, who departed during the third quarter, and professional fees associated with the recruitment of our new chief financial officer.

Previous wording

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, 2022, we incurred approximately $62.6 million in management fees as compared to $46.4 million in fees in the year ended December 31, 2021. The increase in Management fees is primarily attributable to our acquisitions of Lugano in September 2021 and PrimaLoft in July 2022, as well as several add-on acquisitions in the fourth quarter of 2021, offset by our sale of Liberty in August 2021. CGM entered into a waiver of the MSA for a period through June 30, 2023 to receive a 1% annual management fee related to PrimaLoft, rather than the 2% called for under the MSA, which resulted in a lower management fee paid in the third and fourth quarter of 2022 than would have normally been due. CGM also had 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 resulted in a lower management fee paid in the first half of 2021 than would have normally been due. In the first quarter of 2021, the LLC and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee related to the amount of the cash proceeds deposited with the Trustee that was in excess of the amount payable related to the 2026 Notes at March 31, 2021. Additionally, CGM had entered into a waiver of the MSA at March 31, 2022 and June 30, 2022 to exclude the cash balances held at the LLC from the calculation of the management fee.

Current wording

During the year ended December 31, 2024 and 2023, we paid 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, 2024, we incurred approximately $74.8 million in management fees as compared to $67.9 million in fees in the year ended December 31, 2023. The increase in management fees is primarily attributable to our acquisition of The Honey Pot Co. in 2024, and increases in net asset balances at certain of our businesses in the current year. CGM entered into a waiver of the MSA for a period through June 30, 2023 to receive a 1% annual management fee related to PrimaLoft, rather than the 2% called for under the MSA, which resulted in a lower management fee paid in the second half of 2022 and the first half of 2023 than would have normally been due. Additionally, CGM had entered into a waiver of the MSA at December 31, 2023 to exclude the cash balances held at the LLC from the calculation of the management fee.

Previous wording

Amortization expense for the year ended December 31, 2022 increased $11.0 million to $84.7 million as compared to the prior year, primarily as a result of the amortization expense associated with the intangibles that were recognized in conjunction with the purchase price allocation for Lugano, which was acquired in September 2021, and PrimaLoft, which was acquired in July 2022.

Current wording

Amortization expense for the year ended December 31, 2024 increased $11.4 million to $99.8 million as compared to the prior year, primarily as a result of the amortization expense associated with the intangibles that were recognized in conjunction with the purchase price allocation for The Honey Pot Co., which was acquired in January 2024, partially offset by the reduction in amortization expense at Velocity related to the intangible assets that were included in the sale of Crosman.

Previous wording

PrimaLoft performed an interim impairment test of their goodwill during the period ended December 31, 2023 as a result of operating results that were below forecast amounts that were used as the basis for the purchase price allocation at acquisition. The impairment test resulted in PrimaLoft recording impairment expense of $57.8 million. Velocity performed an interim impairment test of their goodwill during the third quarter of 2023 as a result of operating results that were below the forecast that we used in the quantitative annual impairment test of Velocity at March 31, 2023. The impairment test resulted in Velocity recording $31.6 million impairment expense in the year ended December 31, 2023. Ergobaby performed an interim impairment test of their goodwill during the period ended December 31, 2022, resulting in impairment expense of $20.6 million.

Current wording

PrimaLoft performed an interim impairment test of their goodwill during the period ended December 31, 2023 as a result of operating results that were below forecast amounts that were used as the basis for the purchase price allocation at acquisition. The impairment test resulted in PrimaLoft recording impairment expense of $57.8 million. Velocity performed an interim impairment test of their goodwill during the third quarter of 2023 as a result of operating results that were below the forecast that we used in the quantitative annual impairment test of Velocity at March 31, 2023. The impairment test resulted in Velocity recording $31.6 million impairment expense in the year ended December 31, 2023.

Previous wording

Net revenues for the year ended December 31, 2023 increased by approximately $49.7 million or 2.5% compared to the corresponding period in 2022. Our PrimaLoft business, which we acquired in July 2022, contributed $48 million in incremental net revenue in 2023. During the year ended December 31, 2023 compared to 2022, we also saw significant increases in net sales at 5.11 ($46.9 million increase), Lugano ($106.8 million increase) and Arnold ($12.9 million increase), partially offset by a decrease in net revenue at BOA ($52.9 million decrease), Velocity Outdoor ($60.0 million decrease), Altor Solutions ($23.3 million decrease), and Sterno ($28.3 million decrease). On a consolidated level, growth in net revenues at our 5.11 and Lugano businesses offset decreases in net revenues at several of our businesses as compared to the prior year. Several of our consumer brand businesses, particularly BOA, PrimaLoft and Velocity, had a decrease in net revenues resulting from higher than anticipated end market inventory levels due to supply chain normalization and a corresponding inventory ordering surge experienced in 2022. Our industrial businesses faced inflationary pressures in the current year, with both Altor and Sterno experiencing decreases in sales as a result. Refer to "Results of Operations - Our Businesses" for a more detailed analysis of net revenue by business segment.

Current wording

Net revenues for the year ended December 31, 2023 increased by approximately $44.3 million or 2.3% compared to the corresponding period in 2022. Our PrimaLoft business, which we acquired in July 2022, contributed $48 million in incremental net revenue in 2023. During the year ended December 31, 2023 compared to 2022, we also saw significant increases in net sales at 5.11 ($46.9 million increase), Lugano ($106.8 million increase) and Arnold ($12.9 million increase), partially offset by a decrease in net revenue at BOA ($52.9 million decrease), Velocity Outdoor ($60.0 million decrease), Altor Solutions ($23.3 million decrease), and Sterno ($28.3 million decrease). On a consolidated level, growth in net revenues at our 5.11 and Lugano businesses offset decreases in net revenues at several of our businesses as compared to the prior year. Several of our consumer brand businesses, particularly BOA, PrimaLoft and Velocity, had a decrease in net revenues resulting from higher than anticipated end market inventory levels due to supply chain normalization and a corresponding inventory ordering surge experienced in 2022. Our industrial businesses faced inflationary pressures in the current year, with both Altor and Sterno experiencing decreases in sales as a result. Refer to "Results of Operations - Our Businesses" for a more detailed analysis of net revenue by business segment.

Previous wording

On a consolidated basis, cost of revenues decreased approximately $60.5 million during the year ended December 31, 2023, compared to the corresponding period in 2022, primarily as a result of the decrease in net revenues at certain of our subsidiaries. Our PrimaLoft business contributed $18.0 million in incremental cost of revenues for 2023 based on the timing of the acquisition in the prior year. We also saw notable increases in cost of revenues at 5.11 ($26.6 million increase), Lugano ($31.9 million increase) and Arnold ($7.4 million increase) that correspond to the revenue increases noted above. We also saw a decrease in cost of revenues at BOA ($19.1 million decrease), Altor ($38.9 million decrease), Velocity ($42.5 million decrease) and Sterno ($39.4 million decrease) that corresponded to the decrease in revenue noted above. Gross profit as a percentage of net revenues was approximately 43.4% in the year ended December 31, 2023 compared to 39.0% in the year ended December 31, 2022. The increase in gross profit as a percentage of net sales in the year ended December 31, 2023 as compared to the year ended December 31, 2022 is primarily attributable to the mix of products sold, with increases in net revenue at our higher margin businesses, particularly Lugano. Refer to "Results of Operations - Our Businesses" for a more detailed analysis of gross profit by business segment.

Current wording

On a consolidated basis, cost of revenues decreased approximately $60.1 million during the year ended December 31, 2023, compared to the corresponding period in 2022, primarily as a result of the decrease in net revenues at certain of our subsidiaries. Our PrimaLoft business contributed $18.0 million in incremental cost of revenues for 2023 based on the timing of the acquisition in the prior year. We also saw notable increases in cost of revenues at 5.11 ($26.6 million increase), Lugano ($31.9 million increase) and Arnold ($7.4 million increase) that correspond to the revenue increases noted above. We also saw a decrease in cost of revenues at BOA ($19.1 million decrease), Altor ($38.9 million decrease), Velocity ($42.5 million decrease) and Sterno ($39.4 million decrease) that corresponded to the decrease in revenue noted above. Gross profit as a percentage of net revenues was approximately 42.4% in the year ended December 31, 2023 compared to 37.9% in the year ended December 31, 2022. The increase in gross profit as a percentage of net sales in the year ended December 31, 2023 as compared to the year ended December 31, 2022 is primarily attributable to the mix of products sold, with increases in net revenue at our higher margin businesses, particularly Lugano. Refer to "Results of Operations - Our Businesses" for a more detailed analysis of gross profit by business segment.

Previous wording

Consolidated selling, general and administrative expense increased approximately $65.2 million during the year ended December 31, 2023, compared to the corresponding period in 2022. Approximately $11 million of the increase was due to our PrimaLoft acquisition in July 2022. We also saw increases in selling, general and administrative expenses at several of our consumer brands due to increased investment in marketing and headcount, particularly 5.11 ($17.2 million of the increase) and Lugano ($27.6 million of the increase). Refer to "Results of Operations - Business Segments" for a more detailed analysis of selling, general and administrative expense by subsidiary business segment. At the corporate level, general and administrative expense was $18.2 million in 2023 and $16.3 million in 2022, an increase of $1.9 million due to increases in professional fees resulting from increasing regulatory requirements, the timing of investor relation events, and higher staffing costs.

Current wording

Consolidated selling, general and administrative expense increased approximately $60.4 million during the year ended December 31, 2023, compared to the corresponding period in 2022. Approximately $11 million of the increase was due to our PrimaLoft acquisition in July 2022. We also saw increases in selling, general and administrative expenses at several of our consumer brands due to increased investment in marketing and headcount, particularly 5.11 ($17.2 million of the increase) and Lugano ($27.6 million of the increase). Refer to "Results of Operations - Business Segments" for a more detailed analysis of selling, general and administrative expense by subsidiary business segment. At the corporate level, general and administrative expense was $18.2 million in 2023 and $16.3 million in 2022, an increase of $1.9 million due to increases in professional fees resulting from increasing regulatory requirements, the timing of investor relation events, and higher staffing costs.

Previous wording

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, 2023, we incurred approximately $68.4 million in management fees as compared to $62.6 million in fees in the year ended December 31, 2022. The increase in management fees is primarily attributable to our acquisition of PrimaLoft in July 2022. CGM entered into a waiver of the MSA for a period through June 30, 2023 to receive a 1% annual management fee related to PrimaLoft, rather than the 2% called for under the MSA, which resulted in a lower management fee paid in the second half of 2022 and the first half of 2023 than would have normally been due. Additionally, CGM had entered into a waiver of the MSA at December 31, 2023, March 31, 2022 and June 30, 2022 to exclude the cash balances held at the LLC from the calculation of the management fee.

Current wording

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, 2023, we incurred approximately $67.9 million in management fees as compared to $62.1 million in fees in the year ended December 31, 2022. The increase in management fees is primarily attributable to our acquisition of PrimaLoft in July 2022. CGM entered into a waiver of the MSA for a period through June 30, 2023 to receive a 1% annual management fee related to PrimaLoft, rather than the 2% called for under the MSA, which resulted in a lower management fee paid in the second half of 2022 and the first half of 2023 than would have normally been due. Additionally, CGM had entered into a waiver of the MSA at December 31, 2023, March 31, 2022 and June 30, 2022 to exclude the cash balances held at the LLC from the calculation of the management fee.

Previous wording

Amortization expense for the year ended December 31, 2023 increased $11.1 million to $95.8 million as compared to the prior year, primarily as a result of the amortization expense associated with the intangibles that were recognized in conjunction with the purchase price allocation for PrimaLoft, which was acquired in July 2022, and an add-on acquisition at Velocity in July 2022.

Current wording

Amortization expense for the year ended December 31, 2023 increased $11.2 million to $88.4 million as compared to the prior year, primarily as a result of the amortization expense associated with the intangibles that were recognized in conjunction with the purchase price allocation for PrimaLoft, which was acquired in July 2022, and an add-on acquisition at Velocity in July 2022.

Previous wording

We had income tax expense of $21.3 million during the year ended December 31, 2023 compared to income tax expense of $37.1 million in 2022, a decrease of $15.8 million in 2023 as compared to 2022. Our effective tax rate in the year ended December 31, 2023 was (122.6)%, compared to an effective income tax rate of 91.0% during the same period in 2022. Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. In addition to state income taxes, the items with the most significant impact on the difference between our statutory U.S. federal income tax rate of 21% percent and our effective income tax rate in 2023 was the goodwill impairment expense recorded at PrimaLoft in 2023, which is a permanent difference for tax purposes and therefore did not result in an income tax benefit, and the distribution received by the Trust as a result of the BOA recapitalization.

Current wording

We had income tax expense of $22.6 million during the year ended December 31, 2023 compared to income tax expense of $41.4 million in 2022, a decrease of $18.7 million in 2023 as compared to 2022. Our effective tax rate in the year ended December 31, 2023 was (102.0)%, compared to an effective income tax rate of 71.8% during the same period in 2022. Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. In addition to state income taxes, the items with the most significant impact on the difference between our statutory U.S. federal income tax rate of 21% percent and our effective income tax rate in 2023 was the goodwill impairment expense recorded at PrimaLoft in 2023, which is a permanent difference for tax purposes and therefore did not result in an income tax benefit, and the distribution received by the Trust as a result of the BOA recapitalization.

Previous wording

We categorize the businesses we own into two separate groups of businesses (i) branded consumer businesses, and (ii) 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. 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 industrial businesses are leaders in their specific market sector. In the prior year, we announced our desire to acquire businesses in the healthcare sector, with a focus on outsourced pharma, medical manufacturing services and provider services. We have not yet acquired a business in the healthcare sector.

Current wording

We categorize the businesses we own into two separate groups of businesses (i) branded consumer businesses, and (ii) 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. 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 industrial businesses are leaders in their specific market sector. We previously announced our desire to acquire businesses in the healthcare sector, with a focus on outsourced pharma, medical manufacturing services and provider services. We have not yet acquired a business in the healthcare sector.

Previous wording

Segment operating income for the year ended December 31, 2022 was $43.5 million, an increase of $4.2 million when compared to the same period in 2021, based on the factors described above.

Current wording

Segment operating income for the year ended December 31, 2024 was $38.8 million, a decrease of $7.9 million when compared to the same period in 2023, based on the factors described above.

Previous wording

BOA, creator of the revolutionary, award-winning, patented BOA Fit System, partners with market-leading brands to make the best gear even better. Delivering fit solutions purpose-built for performance, the BOA Fit System is featured in footwear across snow sports, cycling, outdoor, athletic, workwear as well as performance headwear and 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 designed with brand partners to deliver superior fit and performance for athletes, is engineered to perform in the toughest conditions 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.

Current wording

BOA, creatorof 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, outdoor, athletic, workwear as well as performance headwear and 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 designed with brand partners to deliver superior fit and performance for athletes, is engineered to perform in the toughest conditions and is backed by The BOA Lifetime Guarantee. BOA is headquartered in Denver, Colorado and has offices in Austria, China, South Korea, and Japan.

Previous wording

Selling, general and administrative expense for the year ended December 31, 2022 was $52.3 million, or 25.0% of net sales, compared to $50.6 million, or 30.6% of net sales for the year ended December 31, 2021. The increase in selling, general and administrative expense of $1.7 million in 2022 was due to increased employee costs related to BOA's bonus plan, incremental headcount and marketing investments. Selling general and administrative expense in the year ended December 31, 2021 included $3.3 million in integration services fees paid to CGM that did not recur in 2022.

Current wording

Selling, general and administrative expense for the year ended December 31, 2024 was $55.3 million, or 29.0% of net sales, compared to $49.0 million, or 31.5% of net sales for the year ended December 31, 2023. The increase in selling, general and administrative expense of $6.3 million in the current year was primarily due to increased employee costs related to BOA’s bonus plan as well as strategic investments in talent across the organization.

Previous wording

Net sales for the year ended December 31, 2023 were $155.8 million, a decrease of $52.9 million or 25.3% when compared to net sales of $208.7 million for the year ended December 31, 2022. The decrease was reflected across key industries including Snow Sports, Cycling, Outdoor, Athletic, Workwear and Performance Bracing. The main factor of the decrease in sales was higher than anticipated end market inventory levels due to supply chain normalization and corresponding inventory ordering surge experienced in many of our industries in 2022. We anticipate a normalization of inventory levels by the middle of next year.

Current wording

Net sales for the year ended December 31, 2023 were $155.8 million, a decrease of $52.9 million or 25.3% when compared to net sales of $208.7 million for the year ended December 31, 2022. The decrease was reflected across key industries including Snow Sports, Cycling, Outdoor, Athletic, Workwear and Performance Bracing. The main factor of the decrease in sales was higher than anticipated end market inventory levels due to supply chain normalization and corresponding inventory ordering surge experienced in many of our industries in 2022.

Previous wording

Gross profit as a percentage of net sales was 59.7% for the year ended December 31, 2023 compared to 60.7% for the same period in 2022. The decrease in gross profit as a percentage of net sales during the current yearwas driven byfixed manufacturing overhead expenses and an increase in depreciation expense related to tooling.

Current wording

Gross profit as a percentage of net sales was 59.7% for the year ended December 31, 2023 compared to 60.7% for the same period in 2022. The decrease in gross profit as a percentage of net sales during 2023 was driven by fixed manufacturing overhead expenses and an increase in depreciation expense related to tooling.

Previous wording

Selling, general and administrative expense for the year ended December 31, 2023 was $49.0 million, or 31.5% of net sales, compared to $52.3 million, or 25.0% of net sales for the year ended December 31, 2022. The decrease in selling, general and administrative expense of $3.2 million in the current year was primarily due to decreased employee costs related to BOA’s bonus plan.

Current wording

Selling, general and administrative expense for the year ended December 31, 2023 was $49.0 million, or 31.5% of net sales, compared to $52.3 million, or 25.0% of net sales for the year ended December 31, 2022. The decrease in selling, general and administrative expense of $3.2 million in 2023 was primarily due to decreased employee costs related to BOA’s bonus plan.

Previous wording

Segment operating income increased $23.9 million during the year ended December 31, 2022 to $53.0 million compared to segment operating income of $29.2 million during the same period in 2021, principally as a result of the increase in sales and gross profit in 2022, as described above.

Current wording

Segment operating income increased $82.9 million during the year ended December 31, 2024 to $183.2 million compared to segment operating income of $100.3 million during the same period in 2023, principally as a result of the increase in sales and gross profit in 2024, as described above.

Previous wording

Net sales for the year ended December 31, 2023 increased approximately $106.8 million or 53.0%, to $308.3 million, compared to the corresponding year ended December 31, 2022. Lugano sells high-end jewelry primarily through retail salons in California, Florida, Texas, Washington D.C., Colorado and Connecticut, and via pop-up showrooms at multiple equestrian, social and charitable functions each year. In the current year, Lugano has experienced an increase in sales from its existing locations as it has invested in building out its inventory as well as its sales, marketing and event staff, while increasing the number of social and charitable functions it has attended. Lugano also opened its Washington D.C. location in March 2023, its Greenwich, Connecticut location in September 2023, and its Palm Beach, Florida flagship location in November 2023, and expects to open more retail locations in the near term to further expand sales opportunities.

Current wording

Net sales for the year ended December 31, 2023 increased approximately $106.8 million or 53.0%, to $308.3 million, compared to the corresponding year ended December 31, 2022. Lugano sells high-end jewelry primarily through retail salons in California, Florida, Texas, Washington D.C., Colorado and Connecticut, and via pop-up showrooms at multiple equestrian, social and charitable functions each year. In the current year, Lugano has experienced an increase in sales from its existing locations as it has invested in building out its inventory as well as its sales, marketing and event staff, while increasing the number of social and charitable functions it has attended. Lugano also opened its Washington D.C. location in March 2023, its Greenwich, Connecticut location in September

Previous wording

In the following results of operations, we provide comparative pro forma results of operations for Lugano for the year ended December 31, 2021 as if we had acquired the business on January 1, 2021. The results of operations that follow include relevant pro-forma adjustments for pre-acquisition periods and explanations where applicable. The operating results for Lugano have been included in the consolidated results of operation from the date of acquisition, September 3, 2021.

Current wording

In the following results of operations, we provide comparative pro forma results of operations for PrimaLoft for the year ended December 31, 2022 as if we had acquired the business on January 1, 2022. The results of operations that follow include relevant pro-forma adjustments for pre-acquisition periods and explanations where applicable. The operating results for PrimaLoft have been included in the consolidated results of operation from the date of acquisition, July 12, 2022.

Previous wording

Pro forma results of operations include the following pro form adjustments as if we had acquired PrimaLoft January 1, 2021:

Current wording

Pro forma results of operations include the following pro forma adjustments as if we had acquired PrimaLoft January 1, 2022:

Previous wording

• Amortization expense associated with the intangible assets recorded in connection with the purchase price allocation of PrimaLoft of an additional $6.4 million and $11.8 million, respectively, for the years ended December 31, 2022 and 2021.

Current wording

• Amortization expense associated with the intangible assets recorded in connection with the purchase price allocation of PrimaLoft of an additional $6.4 millionfor the year ended December 31, 2022.

Previous wording

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

Current wording

• Management fees of $0.5 million that would have been payable to the Manager during the year ended December 31, 2022.

Previous wording

Net sales for the year ended December 31, 2023 were $67.1 million, a decrease of $12.9 million as compared to net sales of $79.9 million for the year ended December 31, 2022. The decrease in net sales during the year ended December 31, 2023 is attributable tohigher than anticipated end market inventory levels leading tolower ordering from existing customers in the first half of the year. We expect that retail ordering will begin to normalize in 2024.

Current wording

Net sales for the year ended December 31, 2023 were $67.1 million, a decrease of $12.9 million as compared to net sales of $79.9 million for the year ended December 31, 2022. The decrease in net sales during the year ended December 31, 2023 is attributable to higher than anticipated end market inventory levels leading to lower ordering from existing customers in the first half of the year.

Previous wording

Gross profit for the year ended December 31, 2023 decreased $5.5 million as compared to the year ended December 31, 2022, primarily due to the decrease in net sales noted above. Gross profit as a percentage of net sales for the year ended December 31, 2023 was 62.7%, as compared to gross profit as a percentage of sales of 59.4% for the year ended December 31, 2022. In the prior year, PrimaLoft recorded $0.6 million inamortization of the inventory step-up resulting from the acquisition purchase price allocation. Excluding the effect of the step-up amortization, the gross profit as a percentage of net sales for the year ended December 31, 2022 was 60.2%. Gross profit as a percentage of sales increased year over year primarily due to price increases implemented in the fourth quarter of 2022.

Current wording

Gross profit for the year ended December 31, 2023 decreased $5.5 million as compared to the year ended December 31, 2022, primarily due to the decrease in net sales noted above. Gross profit as a percentage of net sales for the year ended December 31, 2023 was 62.7%, as compared to gross profit as a percentage of sales of 59.4% for the year ended December 31, 2022. In the prior year, PrimaLoft recorded $0.6 million in amortization of the inventory step-up resulting from the acquisition purchase price allocation. Excluding the effect of the step-up amortization, the gross profit as a percentage of net sales for the year ended December 31, 2022 was 60.2%. Gross profit as a percentage of sales increased year over year primarily due to price increases implemented in the fourth quarter of 2022.

Previous wording

Selling, general and administrative expense for the year ended December 31, 2023 was $19.4 million, or 29.0% of net sales compared to $27.6 million, or 34.5% of net sales for the year ended December 31, 2022. Selling, general and administrative expense in the year ended December 31, 2022 included $5.8 million in transaction costs associated with the Company's acquisition of PrimaLoft. Excluding the transaction costs, selling, general and administrative expense decre ased approximately $2.4 million due to a decrease in stock compensation and a reduction in marketing costs.

Current wording

Selling, general and administrative expense for the year ended December 31, 2023 was $19.4 million, or 29.0% of net sales compared to $27.6 million, or 34.5% of net sales for the year ended December 31, 2022. Selling, general and administrative expense in the year ended December 31, 2022 included $5.8 million in transaction costs associated with the Company's acquisition of PrimaLoft. Excluding the transaction costs, selling, general and administrative expense decreased approximately $2.4 million due to a decrease in stock compensation and a reduction in marketing costs.