0001860543--12-312022Q1false00343833500000000050P3Y34782271000001860543us-gaap:CommonStockMember2022-01-012022-03-3100018605432021-07-012021-07-310001860543us-gaap:RetainedEarningsMember2022-03-310001860543us-gaap:AdditionalPaidInCapitalMember2022-03-310001860543us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-310001860543us-gaap:RetainedEarningsMember2021-12-310001860543us-gaap:AdditionalPaidInCapitalMember2021-12-310001860543us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001860543us-gaap:RetainedEarningsMember2021-03-310001860543us-gaap:AdditionalPaidInCapitalMember2021-03-310001860543us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-310001860543us-gaap:RetainedEarningsMember2020-12-310001860543us-gaap:AdditionalPaidInCapitalMember2020-12-310001860543us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001860543cdre:InsurancePremiumFinancingMember2022-03-310001860543cdre:CurrentPortionOfOtherDebtMember2022-03-310001860543cdre:InsurancePremiumFinancingMember2021-12-310001860543cdre:CurrentPortionOfOtherDebtMember2021-12-310001860543us-gaap:RestrictedStockMembercdre:StockIncentivePlan2021Member2022-03-092022-03-090001860543us-gaap:EmployeeStockOptionMembercdre:StockIncentivePlan2021Member2022-03-092022-03-0900018605432023-04-012022-03-3100018605432022-04-012022-03-310001860543us-gaap:NonUsMember2022-01-012022-03-310001860543country:US2022-01-012022-03-310001860543cdre:U.s.stateAndLocalAgenciesMember2022-01-012022-03-310001860543cdre:U.s.FederalAgenciesMember2022-01-012022-03-310001860543cdre:OtherMember2022-01-012022-03-310001860543cdre:InternationalMember2022-01-012022-03-310001860543cdre:CommercialMember2022-01-012022-03-310001860543us-gaap:NonUsMember2021-01-012021-03-310001860543country:US2021-01-012021-03-310001860543cdre:U.s.stateAndLocalAgenciesMember2021-01-012021-03-310001860543cdre:U.s.FederalAgenciesMember2021-01-012021-03-310001860543cdre:OtherMember2021-01-012021-03-310001860543cdre:InternationalMember2021-01-012021-03-310001860543cdre:CommercialMember2021-01-012021-03-310001860543us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-310001860543us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001860543us-gaap:RetainedEarningsMember2021-01-012021-03-3100018605432021-09-012021-09-300001860543srt:MinimumMembercdre:CanadianCreditFacilityMember2022-01-012022-03-310001860543srt:MaximumMembercdre:CanadianCreditFacilityMember2022-01-012022-03-310001860543us-gaap:RevolvingCreditFacilityMembercdre:CanadianCreditFacilityMember2021-10-140001860543us-gaap:LetterOfCreditMembercdre:CanadianCreditFacilityMember2021-10-140001860543us-gaap:RevolvingCreditFacilityMembercdre:NewCreditAgreementAugust2021Member2021-08-200001860543us-gaap:LetterOfCreditMembercdre:NewCreditAgreementAugust2021Member2021-08-200001860543cdre:SwingLineLoansMembercdre:NewCreditAgreementAugust2021Member2021-08-200001860543us-gaap:LetterOfCreditMembercdre:NewCreditAgreementAugust2021Member2022-03-3100018605432022-12-310001860543us-gaap:TradeNamesMember2022-03-310001860543us-gaap:TradeNamesMember2021-12-310001860543cdre:ProductsMember2022-01-012022-03-310001860543cdre:ProductsMember2022-03-310001860543cdre:DistributionServicesMember2022-03-310001860543cdre:ProductsMember2021-12-310001860543cdre:DistributionServicesMember2021-12-310001860543us-gaap:TradeNamesMember2022-01-012022-03-310001860543us-gaap:TechnologyBasedIntangibleAssetsMember2022-01-012022-03-310001860543us-gaap:NoncompeteAgreementsMember2022-01-012022-03-310001860543us-gaap:CustomerRelationshipsMember2022-01-012022-03-310001860543us-gaap:TradeNamesMember2021-01-012021-12-310001860543us-gaap:TechnologyBasedIntangibleAssetsMember2021-01-012021-12-310001860543us-gaap:NoncompeteAgreementsMember2021-01-012021-12-310001860543us-gaap:CustomerRelationshipsMember2021-01-012021-12-310001860543us-gaap:TradeNamesMember2022-03-310001860543us-gaap:TechnologyBasedIntangibleAssetsMember2022-03-310001860543us-gaap:NoncompeteAgreementsMember2022-03-310001860543us-gaap:CustomerRelationshipsMember2022-03-310001860543us-gaap:TradeNamesMember2021-12-310001860543us-gaap:TechnologyBasedIntangibleAssetsMember2021-12-310001860543us-gaap:NoncompeteAgreementsMember2021-12-310001860543us-gaap:CustomerRelationshipsMember2021-12-310001860543us-gaap:RestrictedStockMembercdre:StockIncentivePlan2021Member2022-03-310001860543us-gaap:EmployeeStockOptionMembercdre:StockIncentivePlan2021Member2022-03-310001860543us-gaap:RetainedEarningsMember2022-01-012022-03-310001860543us-gaap:AccruedLiabilitiesMember2021-12-310001860543us-gaap:InterestRateSwapMember2022-03-310001860543us-gaap:OtherCurrentAssetsMember2022-03-310001860543us-gaap:OtherAssetsMember2022-03-310001860543us-gaap:OtherAssetsMember2021-12-310001860543cdre:TermLoanMembercdre:NewCreditAgreementAugust2021Member2022-01-012022-03-310001860543us-gaap:RevolvingCreditFacilityMembercdre:NewCreditAgreementAugust2021Member2022-03-310001860543cdre:TermLoanMember2022-03-310001860543cdre:OtherLongTermDebtMember2022-03-310001860543cdre:TermLoanMember2021-12-310001860543cdre:TermLoanMembercdre:NewCreditAgreementAugust2021Member2021-08-200001860543us-gaap:RevolvingCreditFacilityMembercdre:NewCreditAgreementAugust2021Member2021-03-310001860543srt:MinimumMembercdre:NewCreditAgreementAugust2021Memberus-gaap:LondonInterbankOfferedRateLIBORMember2022-01-012022-03-310001860543srt:MinimumMembercdre:NewCreditAgreementAugust2021Memberus-gaap:BaseRateMember2022-01-012022-03-310001860543srt:MinimumMembercdre:CanadianCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2022-01-012022-03-310001860543srt:MinimumMembercdre:CanadianCreditFacilityMemberus-gaap:BaseRateMember2022-01-012022-03-310001860543srt:MaximumMembercdre:NewCreditAgreementAugust2021Memberus-gaap:LondonInterbankOfferedRateLIBORMember2022-01-012022-03-310001860543srt:MaximumMembercdre:NewCreditAgreementAugust2021Memberus-gaap:BaseRateMember2022-01-012022-03-310001860543srt:MaximumMembercdre:CanadianCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2022-01-012022-03-310001860543srt:MaximumMembercdre:CanadianCreditFacilityMemberus-gaap:BaseRateMember2022-01-012022-03-310001860543us-gaap:OperatingSegmentsMembercdre:ProductsMember2022-01-012022-03-310001860543us-gaap:OperatingSegmentsMembercdre:DistributionServicesMember2022-01-012022-03-310001860543us-gaap:MaterialReconcilingItemsMember2022-01-012022-03-310001860543us-gaap:OperatingSegmentsMembercdre:ProductsMember2021-01-012021-03-310001860543us-gaap:OperatingSegmentsMembercdre:DistributionServicesMember2021-01-012021-03-310001860543us-gaap:MaterialReconcilingItemsMember2021-01-012021-03-3100018605432021-01-012021-12-310001860543us-gaap:CommonStockMember2022-03-310001860543us-gaap:CommonStockMember2021-12-310001860543us-gaap:CommonStockMember2021-03-310001860543us-gaap:CommonStockMember2020-12-3100018605432021-03-3100018605432020-12-310001860543cdre:RadarLeatherDivisionS.r.lMember2022-01-112022-01-110001860543cdre:CyalumeAcquisitionMemberus-gaap:SubsequentEventMember2022-05-012022-05-310001860543us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMembercdre:DaventryUkFacilityMember2022-03-310001860543us-gaap:InterestRateSwapMemberus-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-03-310001860543us-gaap:InterestRateSwapMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-03-310001860543us-gaap:InterestRateSwapMemberus-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001860543us-gaap:InterestRateSwapMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001860543us-gaap:RestrictedStockMember2022-01-012022-03-310001860543us-gaap:EmployeeStockOptionMember2022-01-012022-03-310001860543us-gaap:RestrictedStockMembercdre:StockIncentivePlan2021Member2022-01-012022-03-310001860543us-gaap:EmployeeStockOptionMembercdre:StockIncentivePlan2021Member2022-01-012022-03-310001860543us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-310001860543cdre:RadarLeatherDivisionS.r.lMemberus-gaap:TrademarksMember2022-01-112022-01-110001860543cdre:RadarLeatherDivisionS.r.lMemberus-gaap:TechnologyBasedIntangibleAssetsMember2022-01-112022-01-110001860543cdre:RadarLeatherDivisionS.r.lMemberus-gaap:CustomerRelationshipsMember2022-01-112022-01-1100018605432022-05-0900018605432021-01-012021-03-310001860543srt:MinimumMembercdre:NewCreditAgreementAugust2021Member2022-03-310001860543srt:MaximumMembercdre:NewCreditAgreementAugust2021Member2022-03-3100018605432022-03-3100018605432021-12-310001860543srt:MaximumMembercdre:NewCreditAgreementAugust2021Member2022-10-012022-10-010001860543us-gaap:RevolvingCreditFacilityMembercdre:CanadianCreditFacilityMember2022-03-310001860543cdre:NewCreditAgreementAugust2021Member2021-10-012021-12-3100018605432022-01-012022-03-310001860543cdre:LongTermIncentivePlanMember2022-01-012022-03-310001860543cdre:LongTermIncentivePlanMember2021-01-012021-03-310001860543cdre:ExecutiveCompensationPlanMember2022-03-310001860543cdre:ExecutiveCompensationPlanMember2022-01-012022-03-310001860543cdre:ExecutiveCompensationPlanMember2022-03-090001860543cdre:RadarLeatherDivisionS.r.lMember2022-01-110001860543cdre:RadarLeatherDivisionS.r.lMember2022-01-012022-03-31iso4217:USDiso4217:USDxbrli:sharesxbrli:sharesxbrli:purecdre:warehousecdre:installmentcdre:itemcdre:segment

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: March 31, 2022

or

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

For the transition period from _________ to _________

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)

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

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

As of May 9, 2022, there were 34,782,271 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 – March 31, 2022 and December 31, 2021

5

Consolidated Statements of Operations and Comprehensive (Loss) Income – Three months ended March 31, 2022 and 2021

6

Consolidated Statements of Cash Flows – Three months ended March 31, 2022 and 2021

7

Consolidated Statements of Shareholders’ Equity – Three months ended March 31, 2022 and 2021

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

36

Item 4.

Controls and Procedures

36

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 6.

Exhibits

38

Signature Page

39

2

Table of Contents

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Except where the context otherwise requires or where otherwise indicated, the terms the “Company”, “Cadre”, “we,” “us,” and “our,” refer to the consolidated business of Cadre Holdings, Inc. and its consolidated subsidiaries. All statements in this Report, other than statements of historical fact, are forward-looking statements. These forward-looking statements are based on management’s current expectations, assumptions, hopes, beliefs, intentions, and strategies regarding future events and are based on currently available information as to the outcome and timing of future events. In some cases, you can identify forward-looking statements because they contain words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “could,” “plan,” “predict,” “potential,” “seem,” “seek,” “future,” “outlook,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. The Company cautions you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of the Company, incident to its business.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. These forward-looking statements are based on information available as of the date of this Report (or, in the case of forward-looking statements incorporated herein by reference, if any, as of the date of the applicable filed document), and any accompanying supplement, and current expectations, forecasts and assumptions, and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date, and the Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. 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 Report. 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. 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. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. Our forward-looking statements do not reflect the potential impact of any future acquisitions, partnerships, mergers, dispositions, joint ventures, or investments we may make.

As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:

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 markets 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;
the impact of political unrest, natural disasters or other crises, terrorist acts, acts of war and/or military operations;
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;

3

Table of Contents

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 political, 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. Other risks and uncertainties are and will be disclosed in our prior and future filings with the Securities and Exchange Commission (“SEC”). The following information should be read in conjunction with the Consolidated Financial Statements included in this Report.

Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking 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)

March 31, 2022

    

December 31, 2021

Assets

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

9,877

$

33,857

Accounts receivable, net of allowance for doubtful accounts of $749 and $645, respectively

 

52,001

 

48,344

Inventories

 

69,401

 

63,978

Prepaid expenses

 

7,747

 

10,353

Other current assets

 

4,360

 

3,171

Assets held for sale

 

271

 

278

Total current assets

 

143,657

 

159,981

Property and equipment, net of accumulated depreciation and amortization of $38,631 and $37,171, respectively

 

35,729

 

33,053

Deferred tax assets, net

 

12,979

 

7,059

Intangible assets, net

 

50,158

 

42,415

Goodwill

 

72,510

 

66,262

Other assets

 

5,965

 

3,026

Total assets

$

320,998

$

311,796

Liabilities, Mezzanine Equity and Shareholders' Equity

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

27,477

$

19,328

Accrued liabilities

 

34,363

 

40,736

Income tax payable

 

2,239

 

1,255

Liabilities held for sale

120

128

Current portion of long-term debt

 

11,700

 

13,174

Total current liabilities

 

75,899

 

74,621

Long-term debt

 

144,661

 

146,516

Deferred tax liabilities

 

3,799

 

1,297

Other liabilities

 

694

 

722

Total liabilities

 

225,053

 

223,156

Commitments and contingencies (Note 7)

 

 

  

Mezzanine equity

 

 

  

Preferred stock ($0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of March 31, 2022 and December 31, 2021)

 

 

Shareholders' equity

 

 

  

Common stock ($0.0001 par value, 190,000,000 shares authorized, 34,782,271 shares and 34,383,350 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively)

 

3

 

3

Additional paid-in capital

 

144,978

 

127,606

Accumulated other comprehensive income (loss)

 

931

 

(1,917)

Accumulated deficit

 

(49,967)

 

(37,052)

Total shareholders’ equity

 

95,945

 

88,640

Total liabilities, mezzanine equity and shareholders' equity

$

320,998

$

311,796

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

March 31, 

    

2022

    

2021

Net sales

$

104,406

$

110,536

Cost of goods sold

 

64,217

 

66,577

Gross profit

 

40,189

 

43,959

Operating expenses

 

  

 

  

Selling, general and administrative

 

53,950

 

28,051

Restructuring and transaction costs

 

599

 

321

Related party expense

 

122

 

153

Total operating expenses

 

54,671

 

28,525

Operating (loss) income

 

(14,482)

 

15,434

Other expense

 

  

 

  

Interest expense

 

(1,490)

 

(5,044)

Other expense, net

 

(205)

 

(44)

Total other expense, net

 

(1,695)

 

(5,088)

(Loss) income before provision for income taxes

 

(16,177)

 

10,346

Benefit (provision) for income taxes

 

6,012

 

(3,482)

Net (loss) income

$

(10,165)

$

6,864

Net (loss) income per share:

 

  

 

  

Basic

$

(0.30)

$

0.25

Diluted

$

(0.30)

$

0.25

Weighted average shares outstanding:

 

  

 

  

Basic

 

34,446,318

 

27,483,350

Diluted

 

34,446,318

 

27,483,350

Net (loss) income

$

(10,165)

$

6,864

Other comprehensive income:

 

  

 

  

Unrealized holding gains, net of tax(1)

3,077

Reclassification adjustments for gains included in net loss, net of tax(2)

131

Total unrealized gains on interest rate swaps, net of tax

3,208

Foreign currency translation adjustments, net of tax(3)

 

(360)

 

284

Other comprehensive income

2,848

284

Comprehensive (loss) income, net of tax

$

(7,317)

$

7,148

(1) Net of income tax expense of $1,026 for the three months ended March 31, 2022.

(2) Amount reclassified to net income relates to gains on interest rate swaps and is included in Interest expense above. Amount is net of income tax expense of $44 for the three months ended March 31, 2022.

(3) Net of income tax expense of $18 and $93 for the three months ended March 31, 2022 and 2021, respectively.

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

6

Table of Contents

CADRE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Three Months Ended March 31, 

    

2022

    

2021

Cash Flows From Operating Activities:

 

  

 

  

Net (loss) income

$

(10,165)

$

6,864

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

 

  

 

  

Depreciation and amortization

 

3,544

 

3,539

Amortization of original issue discount and debt issue costs

 

111

 

677

Deferred income taxes

 

(6,951)

 

3,319

Stock-based compensation

23,588

(Recoveries from) provision for losses on accounts receivable

 

45

 

(91)

Foreign exchange loss

 

253

 

109

Changes in operating assets and liabilities, net of impact of acquisition:

 

 

  

Accounts receivable

 

(1,693)

 

(5,626)

Inventories

 

(2,956)

 

(2,496)

Prepaid expenses and other assets

 

3,158

 

(141)

Accounts payable and other liabilities

 

(18)

 

10,678

Net cash provided by operating activities

 

8,916

 

16,832

Cash Flows From Investing Activities:

 

  

 

  

Purchase of property and equipment

 

(950)

 

(788)

Business acquisition, net of cash acquired

 

(19,787)

 

Net cash used in investing activities

 

(20,737)

 

(788)

Cash Flows From Financing Activities:

 

  

 

  

Proceeds from revolving credit facilities

 

 

88,593

Principal payments on revolving credit facilities

 

 

(88,593)

Principal payments on term loans

 

(2,506)

 

(566)

Principal payments on insurance premium financing

 

(1,474)

 

(917)

Payment of capital leases

 

(11)

 

(7)

Taxes paid in connection with employee stock transactions

(6,216)

Dividends distributed

 

(2,750)

 

Net cash used in financing activities

 

(12,957)

 

(1,490)

Effect of foreign exchange rates on cash and cash equivalents

 

798

 

13

Change in cash and cash equivalents

 

(23,980)

 

14,567

Cash and cash equivalents, beginning of period

 

33,857

 

2,873

Cash and cash equivalents, end of period

$

9,877

$

17,440

Supplemental Disclosure of Cash Flows Information:

Cash (received) paid for income taxes, net

$

(100)

$

15

Cash paid for interest

$

1,282

$

4,292

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

Accruals and accounts payable for capital expenditures

$

119

$

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

7

Table of Contents

CADRE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(In thousands, except per share amounts)

Additional 

Common Stock

Paid-In 

Accumulated Other 

Accumulated 

Shareholders' 

    

Shares

    

Amount

    

Capital

    

Comprehensive Income

    

Deficit

    

Equity

Balance, December 31, 2021

 

34,383,350

 

$

3

 

$

127,606

 

$

(1,917)

 

$

(37,052)

 

$

88,640

Net loss

 

(10,165)

(10,165)

Dividends declared

(2,750)

(2,750)

Stock-based compensation

22,436

22,436

Common stock issued under employee compensation plans

580,990

1,152

1,152

Common stock withheld related to net share settlement of stock-based compensation

(182,069)

(6,216)

(6,216)

Foreign currency translation adjustments

 

(360)

(360)

Change in fair value of derivative instruments

3,208

3,208

Balance, March 31, 2022

 

34,782,271

$

3

$

144,978

$

931

$

(49,967)

$

95,945

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

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

8

Table of Contents

CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except share and per share amounts)

1.    SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

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 14 manufacturing plants within the U.S., Mexico, Canada, the United Kingdom, Italy, 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 and Basis of Presentation

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.

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.

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 may 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.

9

Table of Contents

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.

The presentation of revenue by channel previously reported in the notes to the consolidated financial statements has 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, prepaid expenses, 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, prepaid expenses, 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:

March 31, 2022

December 31, 2021

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 6)

$

5,495

$

$

5,495

$

$

1,607

$

$

1,607

$

Liabilities:

Interest rate swap (Note 6)

$

$

$

$

$

389

$

$

389

$

There were no transfers of assets or liabilities between levels during the three months ended March 31, 2022 and 2021.

The carrying value of our long-term debt obligations approximates the fair value, as the long-term debt was entered into recently and contains a floating interest rate component.

10

Table of Contents

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.

11

Table of Contents

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, which is recorded in accrued liabilities in the consolidated balance sheets, and related costs:

Three months ended March 31, 

    

2022

    

2021

Beginning accrued warranty expense

$

1,256

$

1,133

Current period claims

 

(116)

 

(56)

Provision for current period sales

 

93

 

63

Ending accrued warranty expense

$

1,233

$

1,140

Net (loss) Income per Share

Basic income or loss per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the periods presented. Diluted income or loss per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of potential common shares, determined using the treasury-stock method. The calculation of weighted average shares outstanding and net (loss) income per share are as follows:

    

Three months ended March 31, 

    

2022

    

2021

Net (loss) income

$

(10,165)

$

6,864

 

  

 

  

Weighted average shares outstanding - basic

 

34,446,318

 

27,483,350

Effect of dilutive securities:

Stock-based awards

Weighted average shares outstanding - diluted

 

34,446,318

 

27,483,350

Net (loss) income per share:

 

  

 

  

Basic

$

(0.30)

$

0.25

Diluted

$

(0.30)

$

0.25

For the three months ended March 31, 2022, 886,108 restricted stock awards and 357,479 stock options were anti-dilutive and therefore not included in diluted weighted average shares outstanding. There were no dilutive instruments outstanding for the three months ended March 31, 2021.

12

Table of Contents

CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

Recent Accounting Pronouncements

Adopted Accounting Pronouncements

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 adopted 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.

Accounting Pronouncements Not Yet Adopted

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.    ACQUISITIONS

On January 11, 2022, Safariland, LLC, a wholly-owned subsidiary of the Company, completed the accretive acquisition of Radar Leather Division S.r.l. (“Radar”), a premiere family-owned duty gear business based in Italy that specializes in the production of high-quality holsters, belts, duty belts, and other accessories.

The acquisition was accounted for as a business combination. Total acquisition-related costs for the acquisition of Radar were $627, of which $95 was incurred and recognized during the three months ended March 31, 2022.

Total consideration, net of cash acquired, was $19,787 for 100% of the equity interests in Radar. The total consideration was as follows:

Cash paid

    

$

21,266

Less: cash acquired

 

(1,479)

Total consideration, net

$

19,787

13

Table of Contents

CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

The following table summarizes the total purchase price consideration and the preliminary fair value amounts recognized for the assets acquired and liabilities assumed, which have been estimated at their fair values. The fair value estimates for the purchase price allocation are based on the Company’s best estimates and assumptions as of the reporting date and are considered preliminary. The fair value measurements of identifiable assets and liabilities, and the resulting goodwill related to the Radar acquisition are subject to change and the final purchase price allocation could be different from the amounts presented below. We expect to finalize the valuations as soon as practicable, but no later than one year from the date of the acquisition. The excess of purchase consideration over the assets acquired and liabilities assumed is recorded as goodwill. Goodwill for the Radar acquisition is included in the Products segment and consists largely of the growth and profitability expected from this acquisition.

Total consideration, net

    

$

19,787

Accounts receivable

$

2,347

Inventories

2,500

Prepaid expenses

682

Other current assets

612

Property and equipment

3,053

Intangible assets

10,200

Goodwill

6,711

Total assets acquired

26,105

Accounts payable

1,120

Deferred tax liabilities

2,548

Accrued liabilities

2,106

Long-term debt

544

Total liabilities assumed

6,318

Net assets acquired

$

19,787

In connection with the acquisition, the Company acquired exclusive rights to Radar’s trademarks, customer relationships, and product technologies. The amounts assigned to each class of intangible asset, other than goodwill acquired, and the related average useful lives are as follows:

    

Gross

    

Average Useful Life

Customer relationships

$

9,300

15

Technology

600

 

10

Trademarks

300

7

Total

$

10,200

The full amount of goodwill of $6,711 is expected to be non-deductible for tax purposes. No pre-existing relationships existed between the Company and Radar prior to the acquisition. Radar revenue and cost of goods sold are included in the Products segment. The acquisition was not material to our consolidated financial statements.

14

Table of Contents

CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

3.    REVENUE RECOGNITION

The following tables disaggregate net sales by channel and geography:

Three months ended March 31, 

    

2022

    

2021

U.S. state and local agencies (a)

$

57,923

$

59,377

Commercial

 

11,034

 

11,842

U.S. federal agencies

 

7,914

 

15,593

International

 

27,019

 

21,994

Other

 

516

 

1,730

Net sales

$

104,406

$

110,536

(a) Includes all Distribution sales

Three months ended March 31, 

    

2022

    

2021

    

United States

$

77,387

$

88,542

International

 

27,019

 

21,994

$

104,406

$

110,536

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 $9,608 and $10,949 as of March 31, 2022 and December 31, 2021, respectively. Revenue recognized during the three months ended March 31, 2022 from amounts included in contract liabilities as of December 31, 2021 was $4,991.

Remaining Performance Obligations

As of March 31, 2022, we had $18,642 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 March 31, 2022. We expect to recognize approximately 67% of this balance over the next twelve months and expect the remainder to be recognized in the following two years.

4.    INVENTORIES

The following table sets forth a summary of inventories stated at lower of cost or net realizable value, as of March 31, 2022 and December 31, 2021:

    

    

March 31, 2022

    

December 31, 2021

Finished goods

$

29,736

$

28,707

Work-in-process

 

5,800

 

4,053

Raw materials and supplies

 

33,865

 

31,218

$

69,401

$

63,978

15

Table of Contents

CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

5.    GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table summarizes the changes in goodwill for the three months ended March 31, 2022:

    

Products

    

Distribution

    

Total

Balance, December 31, 2021

$

63,646

$

2,616

$

66,262

Radar acquisition

6,711

6,711

Foreign currency translation adjustments

 

(463)

 

 

(463)

Balance, March 31, 2022

$

69,894

$

2,616

$

72,510

Gross goodwill and accumulated impairment losses was $80,095 and $7,585, respectively, as of March 31, 2022 and $73,899 and $7,585, respectively, as of December 31, 2021.

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 March 31, 2022 and December 31, 2021:

March 31, 2022

    

    

    

    

Weighted 

Accumulated 

Average 

Gross

amortization

Net

 

Useful Life

Definite lived intangibles:

 

  

 

  

 

  

 

  

Customer relationships

$

83,095

 

$

(54,301)

 

$

28,794

 

11

Technology

 

12,523

 

 

(11,033)

 

 

1,490

 

7

Tradenames

 

6,700

 

 

(3,523)

 

 

3,177

 

4

Non-compete agreements

 

1,021

 

 

(1,021)

 

 

 

4

$

103,339

 

$

(69,878)

 

$

33,461

Indefinite lived intangibles:

 

  

 

 

  

 

 

  

 

  

Tradenames

 

16,697

 

 

 

 

16,697

 

Indefinite

Total

$

120,036

 

$

(69,878)

 

$

50,158

 

  

December 31, 2021

    

    

    

    

Weighted 

Accumulated 

Average 

Gross

amortization

Net

 

Useful Life

Definite lived intangibles:

 

  

 

  

 

  

 

  

Customer relationships

$

74,078

$

(52,536)

 

$

21,542

 

11

Technology

 

11,978

 

 

(10,988)

 

 

990

 

7

Tradenames

 

6,473

 

 

(3,264)

 

 

3,209

 

4

Non-compete agreements

 

1,037

 

 

(1,037)

 

 

 

4

$

93,566

 

$

(67,825)

 

$

25,741

Indefinite lived intangibles:

 

  

 

 

  

 

 

  

 

  

Tradenames

 

16,674

 

 

 

 

16,674

 

Indefinite

Total

$

110,240

 

$

(67,825)

 

$

42,415

 

  

16

Table of Contents

CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

The Company recorded amortization expense of $2,157 and $2,186 for the three months ended March 31, 2022 and 2021, respectively, of which $50 and $198 was included in cost of goods sold in the consolidated statements of operations and comprehensive (loss) income for the respective periods.

The estimated amortization expense for finite-lived intangible assets for the remaining nine months of 2022, the next four years and thereafter is as follows:

Remainder of 2022

    

$

6,202

2023

 

7,442

2024

 

4,541

2025

 

2,553

2026

 

2,132

Thereafter

 

10,591

$

33,461

6.    DEBT

The Company’s debt is as follows:

    

March 31, 2022

    

December 31, 2021

Short-term debt:

 

  

 

  

Insurance premium financing

$

1,700

$

3,174

Current portion of term loan

 

10,000

 

10,000

$

11,700

$

13,174

Long-term debt:

 

  

 

  

Revolver

 

 

Term loan

 

146,064

 

148,564

Other

 

535

 

$

146,599

$

148,564

Unamortized debt discount and debt issuance costs

 

(1,938)

 

(2,048)

Total long-term debt, net

$

144,661

$

146,516

The following summarizes the aggregate principal payments of our long-term debt, excluding debt discount and debt issuance costs, for the remaining nine months of 2022, the next four years and thereafter:

Remainder of 2022

    

$

7,500

2023

 

10,132

2024

 

10,269

2025

 

10,134

2026

 

118,564

Thereafter

 

Total principal payments

$

156,599

17

Table of Contents

CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

New Credit Facility

On August 20, 2021 (the “Closing Date”), the Company refinanced its existing credit facilities and entered into a new credit agreement whereby Safariland, LLC, as borrower (the “Borrower”), the Company and certain domestic subsidiaries of the Borrower, as guarantors (the “Guarantors”), closed on and received funding under a credit agreement (initially entered into on July 23, 2021), pursuant to a First Amendment to Credit Agreement (collectively, the “New Credit Agreement”) with PNC Bank, National Association (“PNC”), as administrative agent, and the several lenders from time to time party thereto (together with PNC, the “Lenders”) pursuant to which the Borrower (i) borrowed $200,000 under a term loan (the “Term Loan”), and (ii) may borrow up to $100,000 under a revolving credit facility (including up to $15,000 for letters of credit and up to $10,000 for swing line loans) (the “Revolving Loan”). Each of the Term Loan and the Revolving Loan mature on July 23, 2026. Commencing December 31, 2021, the New Term Loan requires scheduled quarterly payments in amounts equal to 1.25% per quarter of the original aggregate principal amount of the Term Loan, with the balance due at maturity. The New Credit Agreement is guaranteed, jointly and severally, by the Guarantors and, subject to certain exceptions, secured by a first-priority security interest in substantially all of the assets of the Borrower and the Guarantors pursuant to a Security and Pledge Agreement and a Guaranty and Suretyship Agreement, each dated as of the Closing Date.

There were no amounts outstanding under the Revolving Loan as of March 31, 2022 and 2021. As of March 31, 2022, there were $3,069 in outstanding letters of credit and $96,931 of availability.

The Borrower may elect to have the Revolving Loan and Term Loan under the New Credit Agreement bear interest at a base rate or a LIBOR rate, in each case, plus an applicable margin. The applicable margin for these borrowings will range from 0.50% to 1.50% per annum, in the case of base rate borrowings, and 1.50% to 2.50% per annum, in the case of LIBOR borrowings, in each case based upon the level of the Company’s consolidated total net leverage ratio. The New Credit Agreement also requires the Borrower to pay a commitment fee on the unused portion of the loan commitments. Such commitment fee will range between 0.175% and 0.25% per annum, and is also based upon the level of the Company’s consolidated total net leverage ratio. The New Credit Agreement also contains customary representations and warranties, and affirmative and negative covenants, including limitations on additional indebtedness, dividends, and other distributions, entry into new lines of business, use of loan proceeds, capital expenditures, restricted payments, restrictions on liens on the assets of the Borrowers or any Guarantor, transactions with affiliates, amendments to organizational documents, accounting changes, sale and leaseback transactions, dispositions, and mandatory prepayments in connection with certain liquidity events. The New Credit Agreement contains certain restrictive debt covenants, which require us to: (i) maintain a minimum fixed charge coverage ratio of 1.25 to 1.00, starting with the quarter ended December 31, 2021, which is to be determined for each quarter end on a trailing four quarter basis and (ii) maintain a quarterly maximum consolidated total net leverage ratio of 3.75 to 1.00 from the quarter ended December 31, 2021 until the quarter ended September 30, 2022, and thereafter 3.50 to 1.00, which is in each case to be determined on a trailing four quarter basis; provided that under certain circumstances and subject to certain limitations, in the event of a material acquisition, we may temporarily increase the consolidated total net leverage ratio by up to 0.50 to 1.00 for four fiscal quarters following such acquisition. The New Credit Agreement contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, failure to make payment on, or defaults with respect to, certain other material indebtedness, bankruptcy and insolvency events, material judgments and change of control provisions. Upon the occurrence of an event of default, and after the expiration of any applicable grace period, payment of any outstanding loans under the New Credit Agreement may be accelerated and the Lenders could foreclose on their security interests in the assets of the Borrowers and the Guarantors.

Canadian Credit Facility

On October 14, 2021, Med-Eng Holdings ULC and Pacific Safety Products Inc., the Company’s Canadian subsidiaries, as borrowers (the “Canadian Borrowers”), and Safariland, LLC, as guarantor (the “Canadian Guarantor”), closed on a line of credit pursuant to a Loan Agreement (the “Canadian Loan Agreement”) and a Revolving Line of Credit Note (the “Note”) with PNC Bank Canada Branch (“PNC Canada”), as lender pursuant to which the Canadian Borrowers may borrow up to CDN$10,000 under a revolving line of credit (including up to $3,000 for letters of credit) (the “Revolving Canadian Loan”). The Revolving Canadian Loan matures on July 23, 2026.

18

Table of Contents

CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

The Canadian Loan Agreement is guaranteed by the Canadian Guarantor pursuant to a Guaranty and Suretyship Agreement (the “Canadian Guaranty Agreement”).

The Canadian Borrowers may elect to have borrowings either in United States dollars or Canadian dollars under the Canadian Loan Agreement, which will bear interest at a base rate or a LIBOR rate, in each case, plus an applicable margin, in the case of borrowings in United States dollars, or at a Canadian Prime Rate (as announced from time to time by PNC Canada) or a Canadian deposit offered rate (“CDOR”) as determined from time to time by PNC Canada in accordance with the Canadian Loan Agreement. The applicable margin for these borrowings will range from 0.50% to 1.50% per annum, in the case of base rate borrowings and Canadian Prime Rate borrowings, and 1.50% to 2.50% per annum, in the case of LIBOR borrowings and CDOR borrowings. The Canadian Loan Agreement also requires the Canadian Borrowers to pay (i) an unused line fee on the unused portion of the loan commitments in an amount ranging between 0.175% and 0.25% per annum, based upon the level of the Company’s consolidated total net leverage ratio, and (ii) an upfront fee equal to 0.25% of the principal amount of the Note.

There were no amounts outstanding under the Revolving Canadian Loan as of March 31, 2022.

The Canadian Loan Agreement also contains customary representations and warranties, and affirmative and negative covenants, including, among others, limitations on additional indebtedness, entry into new lines of business, entry into guarantee agreements, making of any loans or advances to, or investments in, any other person, restrictions on liens on the assets of the Canadian Borrowers and mergers, transfers of assets and acquisitions. The Canadian Loan Agreement and Note also contain customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, failure to make payment on, or defaults with respect to, certain other material indebtedness, bankruptcy and insolvency events, material judgments and change of control provisions.

Upon the occurrence of an event of default, and after the expiration of any applicable grace period, payment of any outstanding loans under the Canadian Loan Agreement may be accelerated.

Interest Rate Swaps

In September 2021, we entered into an interest rate swap agreement to hedge forecasted monthly interest rate payments on our floating rate debt. As of March 31, 2022, we had the following interest rate swap agreement (the “Swap Agreement”):

Effective date

    

Notional amount

    

Fixed rate

 

September 30, 2021 through July 23, 2026

    

$

100,000

    

0.875

%

Under the terms of the Swap Agreement, we receive payments based on the 1-month LIBOR (approximately 0.46% as of March 31, 2022).

During the three months ended March 31, 2022, there were no interest rate swap agreements that expired.

We entered into the Swap Agreement to convert a portion of the interest rate exposure on our floating rate debt from variable to fixed. We designated this Swap Agreement as a cash flow hedge. A portion of the amount included in accumulated other comprehensive income (loss) is reclassified into interest expense, net as a yield adjustment as interest is either paid or received on the hedged debt. The fair value of our Swap Agreement is based upon Level 2 inputs. We have considered our own credit risk and the credit risk of the counterparties when determining the fair value of our Swap Agreement.

It is our policy to execute such instruments with creditworthy banks and not to enter into derivative financial instruments for speculative purposes. We believe our interest rate swap counterparty will be able to fulfill their obligations under our agreement, and we believe we will have debt outstanding through the expiration date of the swap such that the occurrence of future cash flow hedges remains probable.

19

Table of Contents

CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

The estimated fair value of our Swap Agreement in the consolidated balance sheets was as follows:

    

Balance sheet accounts

    

March 31, 2022

    

December 31, 2021

Other current assets

$

880

$

Other assets

$

4,615

$

1,607

Accrued liabilities

$

$

389

A cumulative gain, net of tax, of $4,121 and $913 as of March 31, 2022 and December 31, 2021, respectively, is reflected in accumulated other comprehensive income (loss).

The amount of gain recognized in other comprehensive income for the three months ended March 31, 2022 was $3,077 net of tax. There was $131 reclassified from accumulated other comprehensive income (loss) into earnings for the three months ended March 31, 2022.

As of March 31, 2022, approximately $885 is expected to be reclassified from accumulated other comprehensive income (loss) into interest expense over the next 12 months.

7.    COMMITMENTS AND CONTINGENCIES

Legal Proceedings

In March 2020, the Company settled an administrative enforcement action filed by the U.S. Federal Trade Commission (“FTC”) relating to Company’s sale of VieVu, LLC to Axon Enterprise Inc. (“Axon”) wherein the FTC alleged that the operative agreements contained non-compete and non-solicitation provisions in violation of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, and Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18. The FTC’s administrative complaint sought only injunctive relief against the Company to enjoin the enforcement of these provisions, now and in the future, and did not seek monetary damages against the Company. In January 2020, the Company and Axon had rescinded these provisions. Pursuant to a consent agreement and proposed consent order entered into by the FTC and the Company, on June 11, 2020, the FTC issued a Decision and Order accepting the Consent Agreement (the “Order”). Under the Order, the Company agreed to not modify and reinstate the rescinded provisions and to not enter into any new similar provisions with Axon, absent prior approval from the FTC. In addition, as part of the Company’s compliance program, the Order imposes an obligation to distribute to, and train the directors and officers on, the requirements of the consent order and to report annually for five years to the FTC ensuring compliance with the consent order. On July 10, 2020, the Company filed its Interim Verified Compliance Report and, on June 11, 2021, filed its First Annual Compliance Report, both as required by the Order.

In June 2020, the Company received a Civil Investigative Demand (“CID”) from the United States Department of Justice (“DOJ”), Western District of Washington (Seattle, WA), pertaining to a False Claims Act investigation, 31 U.S.C, sections 3729-3733 (“FCA”), concerning allegations that soft body armor vest accessory panels sold by the Company are falsely labeled as compliant with the National Institute of Justice performance standards. In September 2020, the Company made its First Production of Documents which contained only documents and data that had been deemed to be of a “priority” nature pursuant to an agreement reached between the Company’s counsel and the Assistant U.S. Attorney handling the matter. In July 2021, the Company received a request for additional information relating to the subject matter of the investigation, with which the Company intends to comply. In October 2021, November 2021 and December 2021, the Company produced additional documents responsive to the correspondence containing requests for specific documents and supplemental information. At this preliminary stage of the investigation, the Company does not have enough information to make an evaluation of the merits, exposure or potential risks regarding this matter.

20

Table of Contents

CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

In September 2021, Safariland, LLC, a wholly-owned subsidiary of the Company, received a jury verdict awarding $7,500 to a plaintiff relating to a personal injury case wherein the plaintiff alleged various product liability claims against Safariland, LLC. The plaintiff in the proceeding, Mr. David Hakim, instituted the proceeding on July 24, 2015, through the filing of a complaint with the United States District Court, Northern District of Illinois, Eastern Division. In the proceeding, the plaintiff, a SWAT officer with the DuPage County Sheriff’s Office (“DCSO”), alleged that he suffered injuries during a training exercise conducted by DCSO in which a Defense Technology Shotgun Breaching TKO round was deployed and passed through a door and lower-floor ceiling causing a fragment to strike plaintiff’s back resulting in injury. Prior to the jury rendering its verdict, the court deferred ruling on Safariland, LLC’s Motion for Judgment as a Matter of Law (“JMOL”). On November 8, 2021, Safariland, LLC filed its post-trial motions, including a supplemental JMOL, motion for new trial and remittitur. On April 18, 2022, the court denied Safariland, LLC’s JMOL, motion for new trial and remittitur and, accordingly, entered a judgment in favor of plaintiff, David Hakim, as to the Third Claim. Safariland, LLC will be filing an appeal on or before May 18, 2022. While any litigation contains an element of uncertainty, the Company believes it is reasonably possible, not probable, that the Company could incur losses related to this case, however, any losses would be indemnified by our insurance carrier under applicable policies.

The Company is also involved in various legal disputes and other legal proceedings and claims that arise from time to time in the ordinary course of business. The Company vigorously defends itself against all lawsuits and evaluates the amount of reasonably possible losses that the Company could incur as a result of these matters. While any litigation contains an element of uncertainty, the Company believes that the reasonably possible losses that the Company could incur in excess of insurance coverage would not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

Insurance

The Company has various insurance policies, including product liability insurance, covering risks and in amounts it considers adequate. There can be no assurance that the insurance coverage maintained by the Company is sufficient or will be available in adequate amounts or at a reasonable cost.

International

As an international company, we are, from time to time, the subject of investigations relation to the Company’s international operations, including under U.S. export control laws (such as ITAR), the FCPA and other similar U.S. and international laws. To the best of the Company’s knowledge, there are not any potential or pending investigations at this time.

Leases

The Company leases office, warehouse, and distribution space under non-cancelable operating leases. As leases expire, it can be expected that, in the normal course of business, certain leases will be renewed or replaced. Our leases generally contain multi-year renewal options and escalation clauses. Total rent expense of the Company for the three months ended March 31, 2022 and 2021 was $1,200 and $1,150, respectively.

21

Table of Contents

CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

Future minimum lease payments required under non-cancelable operating leases that have initial or remaining non-cancelable lease terms in excess of one year for the remaining nine months of 2022, the next four years and thereafter is as follows:

Remainder of 2022

$

3,367

2023

 

4,047

2024

 

2,851

2025

 

1,422

2026

 

486

Thereafter

 

109

Total minimum lease payments

$

12,282

There were no material future minimum sublease payments to be received under non-cancelable subleases as of March 31, 2022. There was no material sublease income for the three months ended March 31, 2022 and 2021.

8.    INCOME TAXES

The Company and its subsidiaries file income tax returns in the U.S. federal, various state and local, and certain foreign jurisdictions. As of March 31, 2022, the Company’s tax years subsequent to 2016 are subject to examination by tax authorities with few exceptions. During the three months ended March 31, 2022, one of the Company’s Canadian subsidiaries concluded an examination of its tax filings for the period June 1, 2016 through December 31, 2017 that resulted in no changes to the filings or the amount of tax due. The 2018 and 2019 tax returns of a separate Canadian subsidiary were selected for examination by the Canadian Revenue Agency.

In assessing the realizability of deferred tax assets, the Company performs a quarterly evaluation of whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. During the course of this evaluation, the Company considers all available positive and negative evidence and if, based upon the weight of available evidence, it is more likely tha