Compass Diversified Holdings Reports Fourth Quarter and Full Year 2010 Financial Results

Generates Cash Flow Available for Distribution and Reinvestment of $21.4 Million for Fourth Quarter Ended December 31, 2010 and $71.3 Million for Full Year 2010

Mar 10, 2011, 07:30 ET from Compass Diversified Holdings

WESTPORT, Conn., March 10, 2011 /PRNewswire/ -- Compass Diversified Holdings (NYSE: CODI) ("CODI" or the "Company"), an owner of leading middle market businesses, announced today its consolidated operating results for the three and twelve months ended December 31, 2010.

Fourth Quarter 2010 Highlights

  • Generated Cash Flow Available for Distribution and Reinvestment ("CAD" or "Cash Flow") of $21.4 million for the fourth quarter of 2010 and $71.3 million for the full year 2010;
  • Reported net income of $0.7 million for the fourth quarter of 2010 and a net loss of $44.8 million for the full year 2010, which includes a $38.8 million non-cash impairment charge;
  • Paid a fourth quarter 2010 cash distribution of $0.34 per share in January 2011, bringing cumulative distributions paid to $5.9952 per share since CODI's IPO in May of 2006; and
  • Completed a 4.85 million share offering in December 2010.

CODI reported Cash Flow (see note regarding use of Non-GAAP Financial Measures below) of $21.4 million for the quarter ended December 31, 2010, as compared to $17.9 million for the prior year comparable quarter. CODI's Cash Flow for the year ended December 31, 2010 was $71.3 million as compared to $37.0 million for the prior year period. CODI's weighted average number of shares outstanding for the quarter and twelve months ended December 31, 2010 was approximately 44.1 million and 40.9 million, respectively, as compared to 36.6 million and 34.4 million for the quarter and twelve months ended December 31, 2009, respectively.

The improvement in Cash Flow for the fourth quarter and full year 2010 as compared to the year-earlier periods was substantially due to higher revenue levels at our subsidiary companies, which also resulted in greater operating efficiencies at a number of our businesses.  In addition, the fourth quarter of 2010 was positively impacted by the inclusion of results from Circuit Express, which was acquired by our subsidiary, Advanced Circuits, on March 11, 2010, as well as from Liberty Safe and ERGObaby, two new CODI platform businesses which were acquired on March 31, 2010 and September 16, 2010, respectively.

CODI's Cash Flow is calculated after taking into account all interest expense, cash taxes paid and maintenance capital expenditures, and includes the operating results of each subsidiary for the periods during which CODI owned them. However, Cash Flow excludes the gains from sales of businesses, which have totaled over $109 million since 2007.

Net income for the quarter ended December 31, 2010 was $0.7 million, as compared to a net loss of $0.1 million for the quarter ended December 31, 2009. CODI reported a net loss for the year ended December 31, 2010 of $44.8 million, as compared to a net loss of $39.6 million for the prior year period. During 2010, CODI recorded a $38.8 million non-cash impairment charge for the Company's American Furniture Manufacturing subsidiary. During the first quarter of 2009, CODI recorded $59.8 million of non-cash impairment expense for the Company's Staffmark subsidiary, partially offset by the associated tax benefit related to this impairment of $22.5 million.

As of December 31, 2010, CODI had $13.5 million in cash and cash equivalents on hand, $74.0 million outstanding on its term loan facility and $22.0 million outstanding under its $340 million revolving credit facility. The Company has no significant debt maturities until late 2012 and had borrowing availability of approximately $248 million at December 31, 2010 under its revolving credit facility.

In December 2010, CODI completed a public offering of 4,850,000 trust shares. CODI raised approximately $78.0 million of net proceeds from the offering of which $70.0 million was used to repay revolver borrowings outstanding.  

On January 5, 2011, CODI's Board of Directors declared a distribution of $0.34 per share. The distribution was paid on January 28, 2011 to all holders of record as of January 21, 2011.

Commenting on the quarter and the full year, Alan Offenberg, interim Chief Executive Officer of Compass Diversified Holdings, stated, "We are pleased to post strong operating results for the fourth quarter and full year 2010. CODI's Cash Flow for the three and twelve months ended December 31, 2010 increased year-over-year by approximately 19% and 93%, respectively. Throughout the year, we capitalized on the leadership position and comparative financial strength of our subsidiaries to expand their relative market share and experienced increased operating leverage by maintaining an efficient cost structure as revenue trends strengthened. We also benefited from the accretive acquisition of two platform companies, increasing our family of niche leading businesses to eight, as well as one add-on to an existing company."

Mr. Offenberg added, "During the fourth quarter, we further strengthened our balance sheet by completing a 4.85 million share offering, resulting in net proceeds of $78.0 million and demonstrating the continued support we have received from the capital markets.  With continuing access to capital, we remain well positioned to consummate acquisitions under favorable valuations and terms as we have in the past. In addition, we plan to reinvest in our current subsidiaries to enhance our high return organic growth initiatives and drive future performance."

Conference Call

Management will host a conference call today at 9:00 a.m. ET to discuss the latest corporate developments and financial results. The dial-in number for callers in the U.S. is (877) 723-9511 and the dial-in number for international callers is (719) 325-4919. The access code for all callers is 3563786. A live webcast will also be available on the Company's website at www.compassdiversifiedholdings.com.  

A replay of the call will be available through March 17, 2011. To access the replay, please dial (888) 203-1112 in the U.S. and (719) 457-0820 outside the U.S., and then enter the access code 3563786.  

Note Regarding Use of Non-GAAP Financial Measures

CAD, or Cash Flow, is a non-GAAP measure used by the Company to assess its performance, as well as its ability to sustain and increase quarterly distributions. A number of CODI's businesses have seasonal earnings patterns, with the first quarter typically being the slowest of the year. Accordingly, the Company believes that the most appropriate measure of its performance is over a trailing or expected 12-month period. We have reconciled CAD, or Cash Flow, to Net Income and Cash Flow Provided by Operating Activities on the Attached Schedules. We consider Net Income and Cash Flow Provided by Operating Activities to be the most directly comparable GAAP financial measures to CAD, or Cash Flow.

About Compass Diversified Holdings ("CODI")

Compass Diversified Holdings ("CODI") owns and manages a diverse family of established North American middle market businesses. Each of its eight subsidiaries is a leader in their niche market.  

CODI maintains controlling ownership interests in each of its subsidiaries in order to maximize its ability to impact long term cash flow generation and value. The Company provides both debt and equity capital for its subsidiaries, contributing to their financial and operating flexibility.  CODI utilizes the cash flows generated by its subsidiaries to invest in the long-term growth of the Company and to make cash distributions to its owners.

Our subsidiaries are engaged in the following lines of business:

  • The manufacture of quick-turn, prototype and production rigid printed circuit boards (Advanced Circuits, www.advancedcircuits.com);
  • The design and manufacture of promotionally priced upholstered furniture (American Furniture Manufacturing, www.americanfurn.net);
  • The design and manufacture of medical therapeutic support surfaces and other wound treatment devices (Anodyne Medical Device, also doing business and known as Tridien Medical, www.anodynemedicaldevice.com);
  • The design and marketing of wearable baby carriers and related products (ERGObaby, www.ergobabycarriers.com);
  • The design, manufacture and marketing of premium suspension products for mountain bikes and powered off-road vehicles (Fox Racing Shox, www.foxracingshox.com);
  • The design, sourcing and fulfillment of logo based promotional products (Halo Lee Wayne, www.haloleewayne.com);
  • The design and manufacture of premium home and gun safes (Liberty Safe, www.libertysafe.com); and
  • The provision of temporary staffing services, operating approximately 300 locations in 29 states (Staffmark, www.staffmark.com).

To find out more about Compass Diversified Holdings, please visit www.compassdiversifiedholdings.com.

This press release may contain certain forward-looking statements, including statements with regard to the future performance of the Company. Words such as "believes," "expects," "projects," and "future" or similar expressions, are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements, and some of these factors are enumerated in the risk factor discussion in the Form 10-K filed by CODI with the Securities and Exchange Commission for the year ended December 31, 2010 and other filings with the Securities and Exchange Commission. CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

A copy of this press release, and of past press releases, is available on Compass Diversified Holdings' website located at www.compassdiversifiedholdings.com.

Compass Diversified Holdings

Condensed Consolidated Balance Sheets

(in thousands)

December 31,

December 31,

2010

2009

Assets

Current assets:

Cash and cash equivalents

$      13,536

$      31,495

Accounts receivable, less allowance of $5,481 and $5,409

208,487

165,550

Inventories

77,412

51,727

Prepaid expenses and other current assets

33,904

26,255

   Total current assets

333,339

275,027

Property, plant and equipment, net

33,484

25,502

Goodwill

325,851

288,028

Intangible assets, net

269,672

216,365

Deferred debt issuance costs, net

3,822

5,326

Other non-current assets

17,873

20,764

Total assets

$        984,041

$        831,012

Liabilities and stockholders' equity

Current liabilities:

Accounts payable and accrued expenses

$    127,499

$      99,395

Due to related party

2,692

3,300

Current portion of long-term debt

2,000

2,500

Current portion of workers' compensation liability

18,170

22,126

Other liabilities

1,043

2,566

   Total current liabilities

151,404

129,887

Supplemental put obligation

44,598

12,082

Deferred income taxes

74,457

60,397

Long-term debt

94,000

74,000

Workers' compensation liability

40,588

38,913

Other non-current liabilities

3,084

7,667

Total liabilities

408,131

322,946

Stockholders' equity

Trust shares, no par value, 500,000 authorized; 46,725 and 36,625 shares issued and

638,763

485,790

  outstanding at 12/31/10 and 12/31/09, respectively

Accumulated other comprehensive loss

(143)

(2,001)

Accumulated deficit

(150,550)

(46,628)

Total stockholders' equity attributable to Holdings

488,070

437,161

Noncontrolling interests

87,840

70,905

 Total stockholders' equity

575,910

508,066

Total liabilities and stockholders' equity

$        984,041

$        831,012

Compass Diversified Holdings

Condensed Consolidated Statements of Operations

Three Months

Three Months

Year

Year

Ended

Ended

Ended

Ended

(in thousands, except per share data)

December 31, 2010

December 31, 2009

December 31, 2010

December 31, 2009

(unaudited)

(unaudited)

Net sales

$                  438,901

$                  362,059

$               1,657,609

$               1,248,740

Cost of sales

339,743

283,149

1,302,202

976,991

          Gross profit

99,158

78,910

355,407

271,749

Operating expenses:

    Staffing expense

20,254

18,135

81,250

74,279

    Selling, general and administrative expenses

50,117

37,855

179,154

145,948

    Supplemental put expense (reversal)

13,886

7,189

32,516

(1,329)

    Management fees

3,997

3,275

15,380

13,100

    Amortization expense

8,243

5,995

29,312

24,609

    Impairment expense

(3,600)

-

38,835

59,800

          Operating income (loss)

6,261

6,461

(21,040)

(44,658)

Other income (expense):

    Interest income

2

1,067

20

1,178

    Interest expense

(3,057)

(2,818)

(11,544)

(11,736)

    Amortization of debt issuance costs

(460)

(433)

(1,789)

(1,776)

    Loss on debt repayment

-

-

-

(3,652)

    Other income (expense), net

(34)

312

718

(282)

          Income (loss) from continuing operations before income taxes

2,712

4,589

(33,635)

(60,926)

Income tax expense (benefit)

2,035

4,639

11,135

(21,281)

          Net income (loss)

677

(50)

(44,770)

(39,645)

Net income (loss) attributable to noncontrolling interest

1,946

1,630

3,987

(13,375)

          Net loss attributable to Holdings

$                    (1,269)

$                    (1,680)

$                  (48,757)

$                  (26,270)

Basic and fully diluted loss per share attributable to Holdings

$                      (0.03)

$                      (0.05)

$                      (1.19)

$                      (0.76)

Weighted average number of shares outstanding - basic and fully diluted

44,122

36,625

40,928

34,403

Cash distributions declared per share

$                        0.34

$                        0.34

$                        1.36

$                        1.36

Compass Diversified Holdings

Condensed Consolidated Statements of Cash Flows

Year

Year

Ended

Ended

(in thousands)

December 31, 2010

December 31, 2009

Cash flows from operating activities:

Net loss

$                  (44,770)

$                  (39,645)

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

  Depreciation and amortization expense

43,909

34,772

  Impairment expense

38,835

59,800

  Supplemental put expense (reversal)

32,516

(1,329)

  Noncontrolling interest and noncontrolling stockholders charges

7,637

1,555

  Loss on debt repayment

-

3,652

  Deferred taxes

(7,146)

(24,964)

  Other

441

107

Changes in operating assets and liabilities, net of acquisition:

 (Increase) decrease in accounts receivable

(22,500)

143

 Increase in inventories

(13,030)

(557)

 Increase in prepaid expenses and other current assets

(3,812)

(4,442)

 Increase (decrease) in accounts payable and accrued expenses

12,761

(8,879)

         Net cash provided by operating activities

44,841

20,213

Cash flows from investing activities:

     Acquisition of businesses, net of cash acquired

(173,732)

(1,435)

     Purchases of property and equipment

(8,668)

(3,585)

     Other

8

38

         Net cash used in investing activities

(182,392)

(4,982)

Cash flows from financing activities:

     Proceeds from issuance of trust shares, net

152,973

42,085

     Net borrowing (repayment) of debt

19,500

(76,500)

     Swap termination fee

-

(2,517)

     Debt issuance costs

(259)

-

     Changes in noncontrolling interests

2,671

2,546

     Other

(128)

(481)

     Distributions paid

(55,165)

(46,342)

         Net cash provided by (used in) financing activities

119,592

(81,209)

Net decrease in cash and cash equivalents

(17,959)

(65,978)

Cash and cash equivalents — beginning of period

31,495

97,473

Cash and cash equivalents — end of period

$                    13,536

$                    31,495

Compass Diversified Holdings

Condensed Consolidated Table of Cash Flows Available for Distribution and Reinvestment ("CAD")

(unaudited)

Three Months Ended

Three Months Ended

Year Ended

Year Ended

(in thousands)    

December 31, 2010

December 31, 2009

December 31, 2010

December 31, 2009

Net income (loss)

$                         677

$                         (50)

$                  (44,770)

$                  (39,645)

  Adjustment to reconcile net income (loss) to cash provided by (used in) operating activities:

     Depreciation and amortization

14,136

8,007

42,120

32,996

     Amortization of debt issuance costs

460

433

1,789

1,776

     Supplemental put expense (reversal)

13,886

7,189

32,516

(1,329)

     Impairment expense

(3,600)

-

38,835

59,800

     Loss on debt repayment

-

-

-

3,652

     Noncontrolling interest and noncontrolling stockholders charges

(572)

177

7,637

1,555

     Deferred taxes  

(2,031)

3,143

(7,146)

(24,964)

     Other

196

361

441

107

     Changes in operating assets and liabilities  

(7,138)

(20,481)

(26,581)

(13,735)

Net cash provided by (used in) operating activities

16,014

(1,221)

44,841

20,213

Plus:

     Unused fee on revolving credit facilities (1)

644

873

3,022

3,454

     Successful acquisition expense (2)

4

-

3,974

-

     Staffmark integration and restructuring expenses

-

54

-

4,076

     Changes in operating assets and liabilities

7,138

20,481

26,581

13,735

Less:

     Advanced Circuits interest income related to loan forgiveness

-

1,047

-

1,047

     Maintenance capital expenditures (3)

2,417

1,222

7,120

3,403

Estimated cash flow available for distribution and reinvestment  

$                    21,383

$                    17,918

$                    71,298

$                    37,028

Distribution paid in April 2010/2009

$                    14,238

$                    10,718

Distribution paid in July 2010/2009

14,238

12,452

Distribution paid in October 2010/2009

14,238

12,453

Distribution paid in January 2011/2010

$                    15,886

$                    12,452

15,886

12,452

$                    15,886

$                    12,452

$                    58,600

$                    48,075

(1) Represents the commitment fee on the unused portion of the Revolving Credit Facilities.

(2) Represents transaction costs for successful acquisitions that were expensed during the period.

(3) Represents maintenance capital expenditures that were funded from operating cash flow and excludes approximately $1.6 million of growth capital

     expenditures incurred by Fox Factory, Inc. for the year ended Dec. 31, 2010.

SOURCE Compass Diversified Holdings



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http://www.compassdiversifiedholdings.com