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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: September 30, 2021

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________ to _________

Commission File Number: 001-40698

CADRE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

38-3873146

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

13386 International Pkwy

Jacksonville, Florida

    

32218

(Address of principal executive offices)

(Zip code)

(904) 741-5400

(Registrant’s telephone number, including area code)

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   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   No  

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

Large accelerated filer

    

Non-accelerated filer

Accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol

    

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

CDRE

New York Stock Exchange

As of November 29, 2021, there were 34,383,350 shares of common stock, par value $0.0001, outstanding.

Table of Contents

INDEX

CADRE HOLDINGS, INC.

PART I

FINANCIAL INFORMATION

Page

Item 1.

Financial Statements (Unaudited)

Consolidated Balance Sheets – September 30, 2021 and December 31, 2020

5

Consolidated Statements of Operations and Comprehensive (Loss) Income – Three and nine months ended September 30, 2021 and 2020

6

Consolidated Statements of Cash Flows – Nine months ended September 30, 2021 and 2020

7

Consolidated Statements of Shareholders’ Equity (Deficit) – Three and nine months ended September 30, 2021 and 2020

8

Notes to Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

Controls and Procedures

41

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

43

Item 1A.

Risk Factors

44

Item 6.

Exhibits

61

Signature Page

63

2

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “might,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include statements about:

the availability of capital to satisfy our working capital requirements;
anticipated trends and challenges in our business and the markets in which we operate;
our ability to anticipate market needs or develop new or enhanced products to meet those needs;
our expectations regarding market acceptance of our products;
the success of competing products by others that are or become available in the market in which we sell our products;
the impact of adverse publicity about the Company and/or its brands, including without limitation, through social media or in connection with brand damaging events and/or public perception;
changes in political, economic or regulatory conditions generally and in the markets in which we operate;
our ability to maintain or broaden our business relationships and develop new relationships with strategic alliances, suppliers, customers, distributors or otherwise;
our ability to retain and attract senior management and other key employees;
our ability to quickly and effectively respond to new technological developments;
the effect of the COVID-19 pandemic on the Company’s business;
the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors;
the ability of our information technology systems or information security systems to operate effectively, including as a result of security breaches, viruses, hackers, malware, natural disasters, vendor business interruptions or other causes;
our ability to properly maintain, protect, repair or upgrade our information technology systems or information security systems, or problems with our transitioning to upgraded or replacement systems;
our ability to protect our trade secrets or other proprietary rights and operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company;
our ability to maintain a quarterly dividend; and
the increased expenses associated with being a public company.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

3

Table of Contents

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, partnerships, mergers, dispositions, joint ventures, or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

4

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CADRE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)

    

September 30, 2021

    

December 31, 2020

Assets

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

15,275

$

2,873

Accounts receivable, net of allowance for doubtful accounts of $624 and $1,113, respectively

 

42,230

 

43,646

Inventories

 

71,067

 

60,923

Prepaid expenses

 

9,212

 

6,665

Other current assets

 

5,859

 

3,362

Total current assets

 

143,643

 

117,469

Property and equipment, net of accumulated depreciation and amortization of $37,510 and $33,643, respectively

 

33,780

 

35,437

Deferred tax assets, net

 

11,696

 

12,900

Intangible assets, net

 

44,459

 

51,009

Goodwill

 

66,227

 

66,314

Other assets

 

2,219

 

150

Total assets

$

302,024

$

283,279

Liabilities, Mezzanine Equity and Shareholders' Equity

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

21,890

$

21,978

Accrued liabilities

 

40,238

 

36,004

Income tax payable

 

2,505

 

1,005

Current portion of long-term debt

 

12,904

 

3,496

Total current liabilities

 

77,537

 

62,483

Long-term debt

 

212,946

 

209,310

Deferred tax liabilities

 

2,430

 

2,085

Other liabilities

 

1,774

 

550

Total liabilities

 

294,687

 

274,428

Commitments and contingencies (Note 6)

 

 

  

Mezzanine equity

 

 

  

Preferred stock ($0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2021 and December 31, 2020)

 

 

Shareholders' equity

 

 

  

Common stock ($0.0001 par value, 190,000,000 shares authorized, 27,483,350 issued and outstanding as of September 30, 2021 and December 31, 2020)

 

3

 

3

Additional paid-in capital

 

48,670

 

48,670

Accumulated other comprehensive loss

 

(2,747)

 

(2,860)

Accumulated deficit

 

(38,589)

 

(36,962)

Total shareholders’ equity

 

7,337

 

8,851

Total liabilities, mezzanine equity and shareholders' equity

$

302,024

$

283,279

The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents

CADRE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(In thousands, except share and per share amounts)

Three Months Ended

Nine Months Ended

September 30,

September 30,

    

2021

    

2020

    

2021

    

2020

Net sales

$

98,654

$

105,735

$

323,751

$

297,019

Cost of goods sold

 

59,346

 

65,739

 

192,256

 

183,869

Gross profit

 

39,308

 

39,996

 

131,495

 

113,150

Operating expenses

 

  

 

  

 

  

 

  

Selling, general and administrative

 

27,673

 

26,908

 

87,168

 

79,963

Restructuring and transaction costs

 

(49)

 

171

 

1,491

 

3,143

Related party expense

 

142

 

159

 

437

 

480

Other general income

 

 

 

 

(10,950)

Total operating expenses

 

27,766

 

27,238

 

89,096

 

72,636

Operating income

 

11,542

 

12,758

 

42,399

 

40,514

Other expense

 

  

 

  

 

  

 

  

Interest expense

 

(3,464)

 

(5,668)

 

(14,129)

 

(18,275)

Loss on extinguishment of debt

 

(15,155)

 

 

(15,155)

 

Other (expense) income, net

 

(352)

 

(213)

 

(881)

 

1,925

Total other expense, net

 

(18,971)

 

(5,881)

 

(30,165)

 

(16,350)

(Loss) income before provision for income taxes

 

(7,429)

 

6,877

 

12,234

 

24,164

Benefit (provision) for income taxes

 

2,123

 

(430)

 

(3,861)

 

(1,491)

Net (loss) income

$

(5,306)

$

6,447

$

8,373

$

22,673

Net (loss) income per share:

 

  

 

  

 

  

 

  

Basic

$

(0.19)

$

0.23

$

0.30

$

0.82

Diluted

$

(0.19)

$

0.23

$

0.30

$

0.82

Weighted average shares outstanding:

 

  

 

  

 

  

 

  

Basic

 

27,483,350

 

27,483,350

 

27,483,350

 

27,483,350

Diluted

 

27,483,350

 

27,483,350

 

27,483,350

 

27,483,350

Net (loss) income

$

(5,306)

$

6,447

$

8,373

$

22,673

Other comprehensive (loss) income, net of tax:

 

  

 

  

 

  

 

  

Foreign currency translation adjustments arising during the period

 

(515)

 

831

 

23

 

(776)

Change in fair value of derivative instruments(1)

 

90

 

 

90

 

Comprehensive (loss) income, net of tax

$

(5,731)

$

7,278

$

8,486

$

21,897

(1) Net of income tax of $30 for the three and nine months ended September 30, 2021

The accompanying notes are an integral part of these consolidated financial statements.

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CADRE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Nine Months Ended September 30,

    

2021

    

2020

Cash Flows From Operating Activities:

 

  

 

  

Net income

$

8,373

$

22,673

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Depreciation and amortization

 

10,426

 

11,207

Amortization of original issue discount and debt issue costs

 

2,483

 

1,012

Loss on extinguishment of debt

 

15,155

 

Non cash consideration received from sale of business

 

 

(6,821)

Deferred income taxes

 

1,533

 

125

Gain on sale of fixed assets

 

 

(6,218)

Provision for losses on accounts receivable

 

(254)

 

(130)

Foreign exchange loss (gain)

 

45

 

(752)

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

1,549

 

10,922

Inventories

 

(10,261)

 

(4,902)

Prepaid expenses and other assets

 

(4,642)

 

(2,332)

Accounts payable and other liabilities

 

6,582

 

3,408

Net cash provided by operating activities

 

30,989

 

28,192

Cash Flows From Investing Activities:

 

  

 

  

Purchase of property and equipment

 

(2,225)

 

(3,913)

Proceeds from disposition of property and equipment

 

 

12,386

Proceeds from sale of equity securities

 

 

5,591

Net cash (used in) provided by investing activities

 

(2,225)

 

14,064

Cash Flows From Financing Activities:

 

  

 

  

Proceeds from revolving credit facilities

 

248,000

 

281,730

Principal payments on revolving credit facilities

 

(223,132)

 

(283,887)

Proceeds from term loans

 

198,735

 

Principal payments on term loans

 

(224,547)

 

(40,841)

Proceeds from insurance premium financing

 

4,269

 

2,733

Principal payments on insurance premium financing

 

(2,611)

 

(1,998)

Payment of capital leases

 

(32)

 

(35)

Payments for debt issuance costs

 

(2,830)

 

Payments on extinguishment of debt

 

(4,215)

 

Dividends distributed

 

(9,996)

 

Net cash used in financing activities

 

(16,359)

 

(42,298)

Effect of foreign exchange rates on cash and cash equivalents

 

(3)

 

6

Change in cash and cash equivalents

 

12,402

 

(36)

Cash and cash equivalents, beginning of period

 

2,873

 

2,520

Cash and cash equivalents, end of period

 

15,275

 

2,484

The accompanying notes are an integral part of these consolidated financial statements.

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CADRE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands, except per share amounts)

Additional 

Common Stock

Paid-In 

Accumulated Other 

Accumulated 

Shareholders' 

    

Shares

    

Amount

    

Capital

    

Comprehensive Loss

    

Deficit

    

Equity

Balance, December 31, 2020

 

27,483,350

$

3

$

48,670

$

(2,860)

$

(36,962)

$

8,851

Net income

 

 

 

 

 

6,864

 

6,864

Foreign currency translation adjustments

 

 

 

 

284

 

 

284

Balance, March 31, 2021

 

27,483,350

$

3

$

48,670

$

(2,576)

$

(30,098)

$

15,999

Net income

 

 

 

 

 

6,815

 

6,815

Foreign currency translation adjustments

 

 

 

 

254

 

 

254

Balance, June 30, 2021

 

27,483,350

$

3

$

48,670

$

(2,322)

$

(23,283)

$

23,068

Net loss

 

 

 

 

 

(5,306)

 

(5,306)

Foreign currency translation adjustments

 

 

 

 

(515)

 

 

(515)

Change in fair value of derivative instruments

 

 

 

 

90

 

 

90

Dividends declared

 

 

 

 

 

(10,000)

 

(10,000)

Balance, September 30, 2021

 

27,483,350

$

3

$

48,670

$

(2,747)

$

(38,589)

$

7,337

Additional 

Common Stock

Paid-In 

Accumulated Other 

Accumulated 

Shareholders' 

    

Shares

    

Amount

    

Capital

    

Comprehensive Loss

    

Deficit

    

Deficit

Balance, December 31, 2019

 

27,483,350

$

3

$

48,670

$

(3,280)

$

(75,415)

$

(30,022)

Net income

 

 

 

 

 

4,252

 

4,252

Foreign currency translation adjustments

 

 

 

 

(1,870)

 

 

(1,870)

Balance, March 31, 2020

 

27,483,350

$

3

$

48,670

$

(5,150)

$

(71,163)

$

(27,640)

Net income

 

 

 

 

 

11,974

 

11,974

Foreign currency translation adjustments

 

 

 

 

263

 

 

263

Balance, June 30, 2020

 

27,483,350

$

3

$

48,670

$

(4,887)

$

(59,189)

$

(15,403)

Net income

 

 

 

 

 

6,447

 

6,447

Foreign currency translation adjustments

 

 

 

 

831

 

 

831

Balance, September 30, 2020

 

27,483,350

$

3

$

48,670

$

(4,056)

$

(52,742)

$

(8,125)

The accompanying notes are an integral part of these consolidated financial statements.

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CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except share and per share amounts)

1.    SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Basis of Presentation

Cadre Holdings, Inc., D/B/A The Safariland Group (the “Company”, “Cadre”, “we”, “us”, and “our”), a Delaware corporation, began operations on April 12, 2012. The Company, headquartered in Jacksonville, Florida, is a global leader in manufacturing and distributing safety and survivability products and other related products for the law enforcement, first responder and military markets. The business operates through 15 manufacturing plants within the U.S., Mexico, Canada, the United Kingdom, and Lithuania, and sells its products worldwide through its direct sales force, distribution channel and distribution partners, online stores, and third-party resellers.

Principles of Consolidation

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting, and include the accounts of the Company, its wholly owned subsidiaries, and other entities consolidated as required by GAAP. Accordingly, they do not include all of the information and footnotes required by GAAP for annual audited financial statements. The unaudited interim consolidated financial statements have been prepared on a basis consistent with the audited consolidated financial statements and include all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. These interim consolidated financial statements and notes thereto should be read in conjunction with the Company’s most recently completed annual consolidated financial statements. All adjustments considered necessary for a fair presentation have been included. All intercompany transactions have been eliminated in consolidation.

Out-of-Period Adjustment

During the three months ended September 30, 2021, the Company recorded an out-of-period adjustment of $962 within Restructuring and transaction costs related to the three months ended June 30, 2021. This out of period adjustment resulted in a decrease to net loss of $687 for the three months ended September 30, 2021.

This out-of-period adjustment did not have a material impact on the Company’s consolidated interim financial statements for the three and nine months ended September 30, 2021, nor was it material to the previously issued interim consolidated financial statements.

Stock Split

In July 2021, the Company effected a 50-for-1 stock split of its common stock and preferred stock. All share and per share information has been retroactively adjusted to reflect the stock split for all periods presented.

Dividend

In August 2021, the Company declared and paid a $10,000, or $0.36 per share, dividend to shareholders on record as of August 11, 2021.

Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, presenting only two years of audited financial statements, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation, and an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or golden parachute arrangements.

In addition, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this provision of the JOBS Act. As a result, we will not be subject to new or revised accounting standards at the same time as other public companies that are not emerging growth companies. Therefore, our consolidated financial statements may not be comparable to those of companies that comply with new or revised accounting pronouncements as of public company effective dates.

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CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

Use of Estimates

The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

Certain items previously reported in the notes to the consolidated financial statements have been reclassified to conform to the current financial statement presentation.

Fair Value Measurements

The Company follows the guidance of Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This guidance also establishes the following three-level hierarchy based upon the transparency of inputs to the valuation of an asset or liability on the measurement date:

Level 1:  Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.

Level 2:  Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3:  Unobservable inputs that reflect assumptions about what market participants would use in pricing assets or liabilities based on the best information available.

The Company’s financial instruments consist principally of cash, accounts receivable, other current assets, accounts payable, accrued liabilities, income tax payable and debt. The carrying amounts of certain of these financial instruments, including cash, accounts receivable, other current assets, accounts payable, accrued liabilities and income tax payable approximate their current fair value due to the relatively short-term nature of these accounts.

The following table presents our fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis:

September 30, 2021

December 31, 2020

Carrying 

Fair Value

Carrying 

Fair Value

    

amount

    

Level 1

    

Level 2

    

Level 3

    

amount

    

Level 1

    

Level 2

    

Level 3

Assets:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Interest rate swap (Note 5)

$

829

$

$

829

$

$

$

$

$

Liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Interest rate swap (Note 5)

 

709

 

 

709

 

 

 

 

 

There were no transfers of assets or liabilities between levels during the three and nine months ended September 30, 2021 and 2020.

The carrying value of our long-term debt obligations approximates the fair value, as the long-term debt was entered into recently. The Company classifies its long-term debt within Level 2 of the fair value hierarchy.

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CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

Goodwill and Other Intangible Assets

The Company tests goodwill and intangible assets determined to have indefinite useful lives for impairment annually, or more frequently if events or circumstances indicate that assets might be impaired. The Company performs these annual impairment tests as of October 31st each year.

In evaluating goodwill for impairment, qualitative factors are considered to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Some of these qualitative factors may include macroeconomic conditions, industry and market considerations, a change in financial performance, or entity-specific events. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, the Company performs a two-step goodwill impairment test. The first step involves a comparison of the fair value of a reporting unit to its carrying value. If the carrying amount of the reporting unit exceeds its fair value, the second step of the process is performed, which compares the implied value of the reporting unit goodwill with the carrying value of the goodwill of that reporting unit. If the carrying value of the goodwill of a reporting unit exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

The Company determines the fair value of its reporting units based on a combination of the income approach and market approach, weighted based on the circumstances. Both values are discounted using a rate that reflects the Company’s best estimate of the weighted average cost of capital of a market participant and is adjusted for appropriate risk factors.

Revenue Recognition

The Company derives revenue primarily from the sale of physical products. The Company recognizes revenue when a contract exists with a customer that specifies the goods and services to be provided at an agreed upon sales price and when the performance obligation is satisfied by transferring the goods or service to the customer. The performance obligation is considered satisfied when control transfers, which is generally determined when products are shipped or delivered to the customer but could be delayed until the receipt of customer acceptance, depending on the terms of the contract. Sales are made on normal and customary short-term credit terms or upon delivery for point of sale transactions.

The Company enters into contractual arrangements primarily with customers in the form of individual customer orders which specify the goods, quantity, pricing, and associated order terms. The Company has some long-term contracts that may contain research and development performance obligations that are satisfied over time. The Company invoices the customer once the billing milestone is reached and collects under customary short-term credit terms. For long-term contracts, the Company recognizes revenue using the input method based on costs incurred, as this method is an appropriate measure of progress toward the complete satisfaction of the performance obligation. Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

At the time of revenue recognition, the Company also provides for estimated sales returns and miscellaneous claims from customers as reductions to revenues. The estimates are based on historical rates of product returns and claims. The Company accrues for such estimated returns and claims with an estimated accrual and associated reduction of revenue. Additionally, the Company records inventory that it expects to be returned as part of inventories, with a corresponding reduction to cost of goods sold.

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CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

Charges for shipping and handling fees billed to customers are included in net sales and the corresponding shipping and handling expenses are included in cost of goods sold in the accompanying consolidated statements of operations and comprehensive (loss) income. We consider our costs related to shipping and handling after control over a product has transferred to a customer to be a cost of fulfilling the promise to transfer the product to the customer.

Sales commissions paid to employees as compensation are expensed as incurred for contracts with service periods less than a year. For contracts with service periods greater than a year, these costs are capitalized and amortized over the life of the contract. These costs are recorded in selling, general and administrative expenses in the Company’s consolidated statements of operations and comprehensive (loss) income.

Product Warranty

Some of the Company’s manufactured products carry limited warranty provisions for defects in quality and workmanship. A warranty reserve is established at the time of sale to cover estimated costs based on the Company’s history of warranty repairs and replacements, and is recorded in cost of goods sold in the Company’s consolidated statements of operations and comprehensive (loss) income.

The following table represents changes in the Company’s accrued warranties and related costs:

Nine months ended September 30,

    

2021

    

2020

Beginning accrued warranty expense

$

1,133

$

2,114

Current period claims

 

(236)

 

(223)

Provision for current period sales

 

256

 

357

Ending accrued warranty expense

$

1,153

$

2,248

Net (loss) Income per Share

Basic income or loss per share is computed by dividing net income by the weighted average number of common shares outstanding during the periods presented. There were no dilutive instruments outstanding during the nine months ended September 30, 2021 and 2020. The calculation of weighted average shares outstanding and net (loss) income per share are as follows:

Three months ended September 30,

    

Nine months ended September 30,

    

2021

    

2020

    

2021

    

2020

Numerator for basic and diluted earnings per share:

 

  

 

  

 

  

 

  

Net (loss) income

$

(5,306)

$

6,447

$

8,373

$

22,673

Denominator:

 

  

 

  

 

  

 

  

Weighted average shares outstanding - basic

 

27,483,350

 

27,483,350

 

27,483,350

 

27,483,350

Diluted weighted average shares outstanding

 

27,483,350

 

27,483,350

 

27,483,350

 

27,483,350

Net (loss) income per share:

 

  

 

  

 

  

 

  

Basic

$

(0.19)

$

0.23

$

0.30

$

0.82

Diluted

$

(0.19)

$

0.23

$

0.30

$

0.82

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CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

Recent Accounting Pronouncements

Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. In July 2018, the FASB issued additional guidance which provided an additional transition method for adopting the updated guidance. Under the additional transition method, entities may elect to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. In June 2020, the FASB issued additional guidance which extends the effective date of ASU 2016-02 for emerging growth companies to begin in fiscal years beginning after December 15, 2021, and interim periods beginning after December 15, 2022. Early adoption is permitted. The Company plans to adopt this standard as of the effective date and is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 includes an impairment model (known as the current expected credit loss model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The use of forecasted information is intended to incorporate more timely information in the estimate of expected credit loss. In November 2019, the FASB issued additional guidance which extends the effective date of ASU 2016-13 for emerging growth companies to begin in fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company plans to adopt this standard on January 1, 2023 and is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying existing guidance. For emerging growth companies, this ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures.

There were no other new accounting standards that the Company expects to have a potential material impact to the financial position or results of operations upon adoption.

2.    REVENUE RECOGNITION

The following tables disaggregate net sales by channel and geography:

Three months ended 

Nine months ended 

September 30,

September 30,

    

2021

    

2020

    

2021

    

2020

U.S. state and local agencies (a)

$

55,559

$

64,507

$

179,385

$

171,552

Commercial

 

7,669

 

10,435

 

27,102

 

25,117

U.S. federal agencies

 

11,286

 

13,177

 

37,365

 

43,632

International

 

22,613

 

16,254

 

74,647

 

51,691

Other

 

1,527

 

1,362

 

5,252

 

5,027

Net sales

$

98,654

$

105,735

$

323,751

$

297,019

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CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

(a)Includes all Distribution sales

Three months ended 

    

Nine months ended 

September 30,

September 30,

    

2021

    

2020

    

2021

    

2020

United States

$

76,041

$

89,481

$

249,104

$

245,328

International

 

22,613

 

16,254

 

74,647

 

51,691

$

98,654

$

105,735

$

323,751

$

297,019

Contract Liabilities

Contract liabilities are recorded as a component of other liabilities when customers remit cash payments in advance of the Company satisfying performance obligations which are satisfied at a future point of time. Contract liabilities are reduced when the performance obligation is satisfied. Contract liabilities are included in accrued liabilities in the Company’s consolidated balance sheets and totaled $9,044 and $6,485 at September 30, 2021 and December 31, 2020, respectively. Revenue recognized during the nine months ended September 30, 2021 from amounts included in contract liabilities at December 31, 2020 was $4,785.

Remaining Performance Obligations

As of September 30, 2021, we had $25,851 of remaining performance obligations, which included amounts that will be invoiced and recognized in future periods. The remaining performance obligations are limited only to arrangements that meet the definition of a contract under ASC Topic 606, Revenue from Contracts with Customers, as of September 30, 2021. We expect to recognize approximately 61% of this balance over the next twelve months and expect the remainder to be recognized in the following two years.

3.    INVENTORIES

The following table sets forth a summary of inventories stated at lower of cost or net realizable value, as of September 30, 2021 and December 31, 2020:

    

September 30, 2021

    

December 31, 2020

Finished goods

$

31,541

$

25,986

Work-in-process

 

4,833

 

3,741

Raw materials and supplies

 

34,693

 

31,196

$

71,067

$

60,923

4.    GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table summarizes the changes in goodwill for the nine months ended September 30, 2021:

    

Products

    

Distribution

    

Total

Balance, December 31, 2020

$

63,698

$

2,616

$

66,314

Foreign currency translation adjustments

 

(87)

 

 

(87)

Balance, September 30, 2021

$

63,611

$

2,616

$

66,227

Gross goodwill and accumulated impairment losses was $73,812 and $7,585, respectively, at September 30, 2021 and $73,899 and $7,585, respectively, at December 31, 2020.

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CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

Intangible Assets

Intangible assets such as certain customer relationships and patents on core technologies and product technologies are amortizable over their estimated useful lives. Certain trade names and trademarks which provide exclusive and perpetual rights to manufacture and sell their respective products are deemed indefinite-lived and are therefore not subject to amortization.

Intangible assets consisted of the following as of September 30, 2021 and December 31, 2020:

September 30, 2021

    

    

    

    

Weighted 

Accumulated 

Average 

Gross

amortization

Net

 

Useful Life

Definite lived intangibles:

 

  

 

  

 

  

 

  

Customer relationships

$

74,088

 

(50,858)

 

23,230

 

11

Technology

 

11,978

 

(10,919)

 

1,059

 

7

Tradenames

 

6,472

 

(2,980)

 

3,492

 

4

Non-compete agreements

 

1,037

 

(1,037)

 

 

4

$

93,575

 

(65,794)

 

27,781

Indefinite lived intangibles:

 

  

 

  

 

  

 

  

Tradenames

 

16,678

 

 

16,678

 

Indefinite

Total

$

110,253

 

(65,794)

 

44,459

 

  

December 31, 2020

    

    

    

    

Weighted 

Accumulated 

Average 

Gross

amortization

Net

 

Useful Life

Definite lived intangibles:

 

  

 

  

 

  

 

  

Customer relationships

$

74,123

 

(45,815)

 

28,308

 

11

Technology

 

11,991

 

(10,333)

 

1,658

 

7

Tradenames

 

6,490

 

(2,135)

 

4,355

 

4

Non-compete agreements

 

1,041

 

(1,027)

 

14

 

4

$

93,645

 

(59,310)

 

34,335

Indefinite lived intangibles:

 

  

 

  

 

  

 

  

Tradenames

 

16,674

 

 

16,674

 

Indefinite

Total

$

110,319

 

(59,310)

 

51,009

 

  

The Company recorded amortization expense of $2,174 and $2,203 for the three months ended September 30, 2021 and 2020, respectively, of which $198 and $290 was included in cost of goods sold in the consolidated statements of operations and comprehensive (loss) income for the respective periods. Amortization expense for the nine months ended September 30, 2021 and 2020 was $6,538 and $7,047, respectively, of which $596 and $1,090 was included in cost of goods sold in the consolidated statements of operations and comprehensive (loss) income for the respective periods.

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CADRE HOLDINGS, INC.