Compass Diversified Holdings Reports Second Quarter 2011 Financial Results

Generates Cash Flow Available for Distribution and Reinvestment of $18.4 Million

News provided by

Compass Diversified Holdings

Aug 09, 2011, 07:30 ET

WESTPORT, Conn., Aug. 9, 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 six months ended June 30, 2011.

Second Quarter 2011 Highlights

  • Generated Cash Flow Available for Distribution and Reinvestment ("CAD" or "Cash Flow") of $18.4 million for the second quarter of 2011;
  • Reported net income of $8.3 million for the second quarter of 2011; and
  • Paid a second quarter 2011 cash distribution of $0.36 per share in July 2011, bringing cumulative distributions paid to $6.7152 per share since CODI's IPO in May of 2006.

CODI reported Cash Flow (see note regarding use of Non-GAAP Financial Measures below) of $18.4 million for the quarter ended June 30, 2011, as compared to $14.8 million for the comparable quarter of the prior year. CODI's weighted average number of shares outstanding for the quarter ended June 30, 2011 and June 30, 2010 was approximately 46.7 million and 41.0 million, respectively.

The improvement in Cash Flow for the second quarter 2011 as compared to the year-earlier period was largely due to the inclusion of results from ERGObaby, a new CODI platform business acquired on September 16, 2010 and from higher revenue levels at a number of our subsidiaries.

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 June 30, 2011 was $8.3 million, as compared to a net loss of $0.7 million for the quarter ended June 30, 2010. During the quarter ended June 30, 2011, CODI recorded higher operating income as well as lower income tax expense due to the timing of an effective rate adjustment for Staffmark that was recorded in the year-earlier period.

As of June 30, 2011, CODI had $9.2 million in cash and cash equivalents on hand, $73.0 million outstanding on its term loan facility and $15.0 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 $234 million at June 30, 2011 under its revolving credit facility.

On July 6, 2011, CODI's Board of Directors declared a second quarter distribution of $0.36 per share. The distribution was paid on July 28, 2011 to all holders of record as of July 21, 2011.

Commenting on the quarter, Alan Offenberg, CEO of Compass Diversified Holdings, said, "During the second quarter, we posted strong financial results, with an increase in Cash Flow of 24.3% compared to the year-earlier period.  Our companies continue to focus on gaining market share in their respective industries, capitalizing on their relative operating and financial strength.  In particular, we are pleased with the progress that our management team is making at our newest company, ERGObaby, which is reflected both quantitatively in the subsidiary's strong operating results and qualitatively through the company's product development and distribution channel expansion efforts.  For the second quarter, we paid a distribution of $0.36 per share, and have now paid out $6.72 to our shareholders since our 2006 IPO. With a flexible balance sheet, we remain well positioned to provide attractive distributions to our owners and to capitalize on accretive acquisition opportunities."

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) 638-4558 and the dial-in number for international callers is (914) 495-8537. The access code for all callers is 86124922. 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 August 16, 2011. To access the replay, please dial (855) 859-2056 in the U.S. and (404) 537-3406 outside the U.S., and then enter the access code 86124922.

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, 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 Branded Solutions, www.halo.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.

Compass Diversified Holdings

Condensed Consolidated Balance Sheets






(in thousands)

June 30,

December 31,


2011

2010


(unaudited)

Assets



Current assets:



Cash and cash equivalents

$    9,241

$      13,536

Accounts receivable, less allowance of $4,679 and $5,481

208,151

208,487

Inventories

88,235

77,412

Prepaid expenses and other current assets

28,840

33,904

   Total current assets

334,467

333,339





Property, plant and equipment, net

39,633

33,484

Goodwill

319,766

325,851

Intangible assets, net

252,487

269,672

Deferred debt issuance costs, net

3,412

3,822

Other non-current assets

26,603

17,873

Total assets

$    976,368

$        984,041










Liabilities and stockholders’ equity





Current liabilities:



Accounts payable and accrued expenses

$150,845

$    127,499

Due to related party

3,500

2,692

Current portion of supplemental put obligation

6,891

-

Current portion, long-term debt

2,000

2,000

Current portion of workers' compensation liability

18,366

18,170

Other current liabilities

869

1,043

   Total current liabilities

182,471

151,404





Long-term debt

86,000

94,000

Supplemental put obligation

42,602

44,598

Deferred income taxes

75,178

74,457

Workers' compensation liability

41,457

40,588

Other non-current liabilities

1,214

3,084

Total liabilities

428,922

408,131





Stockholders' equity



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


638,759

638,763

  outstanding at 6/30/11 and 12/31/10



Accumulated other comprehensive loss

-

(143)

Accumulated deficit

(183,854)

(150,550)

       Total stockholders' equity attributable to Holdings

454,905

488,070

Noncontrolling interests

92,541

87,840

   Total stockholders' equity

547,446

575,910

Total liabilities and stockholders’ equity

$    976,368

$        984,041

Compass Diversified Holdings

Condensed Consolidated Statements of Operations

(unaudited)




















Three Months


Three Months


Six Months


Six Months



Ended

Ended

Ended

Ended

(in thousands, except per share data)


June 30, 2011

June 30, 2010

June 30, 2011

June 30, 2010









Net sales

$         428,084

$         404,322

$       852,209

$       757,941

Cost of sales

333,819

318,630

668,356

601,223

          Gross profit

94,265

85,692

183,853

156,718

Operating expenses:







    Staffing expense

21,605

20,300

43,720

39,907

    Selling, general and administrative expense

44,767

42,555

91,164

84,936

    Supplemental put expense


1,667

2,565

4,895

16,991

    Management fees

3,935

3,709

7,778

7,373

    Amortization expense

7,689

7,477

15,391

13,600

    Impairment expense

-

-

7,700

-

          Operating income (loss)


14,602

9,086

13,205

(6,089)









Other income (expense):







    Interest income

-

2

2

17

    Interest expense

(2,340)

(2,860)

(4,879)

(5,561)

    Amortization of debt issuance costs

(542)

(418)

(1,001)

(836)

    Other income, net

345

211

591

391

         Income (loss) before income taxes  

12,065

6,021

7,918

(12,078)

Income tax expense


3,799

6,764

6,219

3,952

          Net income (loss)

8,266

(743)

1,699

(16,030)

Net income attributable to noncontrolling interest

1,888

717

2,295

1,399

          Net income (loss) attributable to Holdings

$             6,378

$            (1,460)

$             (596)

$        (17,429)









Basic and fully diluted net income (loss) per share

$               0.14

$              (0.04)

$            (0.01)

$            (0.45)









Weighted average number of shares outstanding –basic and fully diluted

46,725

40,998

46,725

38,824









Cash distributions declared per share

$               0.36

$               0.34

$             0.72

$             0.68

Compass Diversified Holdings

Condensed Consolidated Statements of Cash Flows

(unaudited)







Six Months


Six Months



Ended

Ended

(in thousands)

June 30, 2011

June 30, 2010





Cash flows from operating activities:



Net income (loss)  

$           1,699

$        (16,030)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:



  Depreciation and amortization expense

21,801

18,566

  Impairment expense

7,700

-

  Supplemental put expense


4,895

16,991

  Noncontrolling interests and noncontrolling stockholders charges


1,215

7,441

  Deferred taxes

(1,926)

(2,062)

  Other

87

(160)





Changes in operating assets and liabilities, net of acquisition:



  Decrease (increase) in accounts receivable

1,627

(18,184)

  Increase in inventories

(11,282)

(19,307)

  Increase in prepaid expenses and other current assets

(3,305)

(3,812)

  Increase in accounts payable and accrued expenses

25,973

24,126

         Net cash provided by operating activities

48,484

7,569





Cash flows from investing activities:



     Acquisition of businesses, net of cash acquired

-

(83,721)

     Purchases of property and equipment

(11,367)

(2,218)

     Other

150

37

         Net cash used in investing activities

(11,217)

(85,902)





Cash flows from financing activities:



     Proceeds from issuance of Trust shares, net

-

75,029

     Net borrowing (repayment) of debt

(8,000)

11,700

     Debt issuance costs

(593)

(155)

     Distributions paid

(32,708)

(26,690)

     Net proceeds related to noncontrolling interest

-

2,085

     Other

(261)

(19)

         Net cash provided by (used in) financing activities

(41,562)

61,950





Net decrease in cash and cash equivalents

(4,295)

(16,383)

Cash and cash equivalents -- beginning of period

13,536

31,495

Cash and cash equivalents -- end of period

$           9,241

$         15,112

Compass Diversified Holdings

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

(unaudited)




















Three Months Ended

Three Months Ended

Six Months Ended

Six Months Ended

(in thousands)    


June 30, 2011

June 30, 2010

June 30, 2011

June 30, 2010









Net income (loss)

$             8,266

$               (743)

$                    1,699

$                 (16,030)

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







     Depreciation and amortization


10,486

9,725

20,800

17,730

     Impairment expense

-

-

7,700

-

     Amortization of debt issuance costs

542

418

1,001

836

     Supplemental put expense

1,667

2,565

4,895

16,991

     Noncontrolling interests and noncontrolling stockholders charges


363

3,071

1,215

7,441

     Other  

(205)

50

87

(160)

     Deferred taxes  

(933)

59

(1,926)

(2,062)

     Changes in operating assets and liabilities  

(11,460)

(23,955)

13,013

(17,177)

Net cash provided by (used in) operating activities

8,726

(8,810)

48,484

7,569

Plus:







     Unused fee on revolving credit facility (1)

766

787

1,542

1,629

     Successful acquisition expense (2)

350

135

850

1,924

     Changes in operating assets and liabilities


11,460

23,955

-

17,177

Less:







     Maintenance capital expenditures (3)

2,857

1,231

5,124

2,181

     Changes in operating assets and liabilities


-

-

13,013

-









Estimated cash flow available for distribution and reinvestment  

$           18,445

$           14,836

$                  32,739

$                  26,118


















Distribution paid in March 2011 and April 2010




$                  16,821

$                  14,238

Distribution paid in July 2011/2010

$           16,821

$           14,238

16,821

14,238


$           16,821

$           14,238

$                  33,642

$                  28,476


















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

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

(3) Excludes growth capital expenditures of approximately $4.0 million for the three months ended June 30, 2011 and $6.2 million for the six months ended June 30, 2011.

Compass Diversified Holdings

Condensed Segment Profit (Loss) (1)

(unaudited)




















Three Months


Three Months


Six Months


Six Months



Ended

Ended

Ended

Ended

(in thousands)


June 30, 2011

June 30, 2010

June 30, 2011

June 30, 2010









Advanced Circuits

$             6,805

$             6,258

$         13,887

$           7,202

American Furniture (2)

(1,597)

1,185

(9,595)

3,898

ERGObaby

2,201

-

4,585

-

Fox

4,602

3,014

9,626

5,876

Halo

2,881

238

2,430

(537)

Liberty Safe

1,017

(169)

1,913

(1,619)

Staffmark

5,037

6,243

4,701

5,411

Tridien

1,099

3,402

2,342

5,636

 Total

22,045

20,171

29,889

25,867

Reconciliation of segment profit to consolidated







 income (loss) before income taxes:







Interest expense, net

(2,340)

(2,858)

(4,877)

(5,544)

Other income

345

211

591

391

Corporate and other (3)

(7,985)

(11,503)

(17,685)

(32,792)

 Consolidated income (loss) before income taxes

$           12,065

$             6,021

$           7,918

$        (12,078)


















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

(2) Includes $7.7 million of goodwill and intangible asset impairment charges for the six months ended June 30, 2011.

(3) Includes fair value adjustments related to the supplemental put liability and the call option of a noncontrolling shareholder.

SOURCE Compass Diversified Holdings