Chronicle Journal: Finance

Compass Diversified Trust Reports 2006 Year End Financial Results

WESTPORT, Conn., March 12 /PRNewswire-FirstCall/ -- Compass Diversified Trust (NASDAQ:CODI) and Compass Group Diversified Holdings LLC (collectively, the "Trust" or "CODI") announced today the consolidated results of operations for the year ended December 31, 2006.

For the year ended December 31, 2006, the Trust reported cash flow available for distribution of $23.7 million. For the year, the results reflect 46 days of activity of the Trust's initial businesses in the second quarter and the complete results of operations for the third and fourth quarter.

On January 5, 2007, the Trust's Board of Directors declared a distribution of $0.30 per share payable on January 24, 2007 to all Trust shareholders of record as of January 18, 2007. The Trust intends to continue to declare and pay regular quarterly cash distributions on all outstanding shares.

Based upon the Trust's reported cash flow available for distribution for the year ended December 31, 2006 of $23.7 million, the coverage ratio for the combined July 18, 2006 distribution of $0.1327 per share, the October 19, 2006 distribution of $0.2625 per share and the January 24, 2007 distribution of $0.30 per share was approximately 1.7x. Since the May 2006 initial public offering, the Trust has paid out $14.1 million in total cash distributions.

Commenting on the year, I. Joseph Massoud, CEO of the Company noted, "During 2006, CODI achieved several major milestones, including its May initial public offering and the acquisition of our four initial businesses. Other highlights from 2006 include the acquisition of one additional platform subsidiary and three subsidiary add-on acquisitions to increase the scope of our existing businesses. I am extremely pleased with our execution and the achievement of these significant milestones in a relatively short period of time. It is also worth noting that the November refinancing of our credit facility not only gives CODI a significantly lower cost of capital, it also provides the Trust with the flexibility and means to make acquisitions without subsidiary-specific third party financing, which we have found to be a significant competitive advantage in our pursuit of attractive acquisitions."

Mr. Massoud concluded, "Turning to the current year, we are pleased to have sold one of our subsidiaries at a significant gain to our shareholders and to have acquired two additional platform subsidiaries. More important than this acquisition and divestiture activity, however, is the continued strong performance of our subsidiary businesses, which is ultimately the driver of our ability to make and grow shareholder distributions over time."

On January 8, 2007, Compass announced its divestiture of Crosman Acquisition Corp. to Wachovia Capital Partners based on a total enterprise value of approximately $143 million. The majority of the proceeds were used to repay debt under the Trust's revolving credit facility. The Trust will recognize a gain in fiscal year 2007 from the sale of approximately $36-37 million.

On March 1, 2007, the Trust announced definitive agreements to acquire controlling interests in two new subsidiary companies, Halo Branded Solutions and Aeroglide Corporation. The total combined consideration for both purchases was based on an aggregate total enterprise value of approximately $119 million. Aeroglide is a leading global designer and manufacturer of industrial drying and cooling equipment that provides specialized thermal processing equipment, including conveyer driers and coolers, impingement driers, drum driers, rotary driers, toasters, spin cookers and coolers designed to remove moisture and heat as well as roasting, toasting and baking a variety of processed products. Halo Branded Solutions, through its two operating brand names of Halo and Lee Wayne, serves as a one-stop shop for over 30,000 customers providing design, sourcing, management and fulfillment services across all categories of its customer promotional product needs in effectively communicating a logo or marketing message to a target audience.

For the year ended December 31, 2006, the Trust reported a non-cash expense of $22.5 million associated with the Supplemental Put Agreement (the "SPA") between its subsidiary, Compass Group Diversified Holdings LLC (the "Company") and Compass Group Management, LLC (the "Manager"). Upon a termination of the Company's Management Services Agreement with the Manager, the Company is obligated to purchase the allocation interests owned by the Manager for a price (its "fair value") to be determined in accordance with the SPA. The Trust is required each quarter for accounting purposes to record the change in fair value of the obligation associated with the SPA in its earnings. This supplemental put accrual does not affect the Trust's cash flows or the calculation of cash flow available for distribution, but results in the recognition of a supplemental put expense in its income statement.

The accrual associated with the Supplemental Put Agreement primarily represents the portion of the estimated increase in the value of the subsidiary businesses over the Trust's book value in those businesses to which the Manager would be entitled if the Management Services Agreement were terminated. Importantly, it should be noted that this particular non-cash expense may fluctuate significantly in future reporting periods as changes in subsidiary operating performance and other factors could significantly impact this estimate.

Conference Call

Management will host a conference call this morning 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 (800) 810-0924 and the dial-in number for international callers is (913) 981-4900. The access code for all callers is 4579000. A live webcast will also be available on the Trust's website at http://www.compassdiversifiedtrust.com.

A replay of the call will be available through March 25, 2007. 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 4579000.

About Compass Diversified Trust

CODI was formed to acquire and manage a group of profitable middle market businesses that are headquartered in North America. CODI provides public investors with an opportunity to participate in the ownership and growth of companies which have historically been owned by private equity firms or wealthy individuals or families. CODI's disciplined approach to its target market provides opportunities to methodically purchase attractive businesses at values that are accretive to its shareholders. For sellers of businesses, CODI's unique structure allows CODI to acquire businesses efficiently with no financing contingencies and, following acquisition, to provide its companies with substantial access to growth capital.

Upon acquisition, CODI works with the executive teams of its subsidiary companies to identify and capitalize on opportunities to grow those companies' earnings and cash flows. These cash flows support distributions to CODI shareholders, which are intended to be steady and growing over the long term.

    Subsidiary Businesses

     * Aeroglide Corporation and its consolidated subsidiaries, referred to as
       Aeroglide, is a leading global designer and manufacturer of industrial
       drying and cooling equipment, primarily used in the production of a
       variety of human foods, animal and pet feeds, and industrial products.
       Aeroglide is based in Cary, NC and was founded in 1940.

     * Anodyne Medical Device, Inc. and its consolidated subsidiaries,
       referred to as AMD, is a leading manufacturer of medical support
       surfaces and patient positioning devices, primarily used for the
       prevention and treatment of pressure wounds experienced by patients
       with limited or no mobility.  AMD is based in Los Angeles, CA and was
       founded in 2005.

     * CBS Personnel Holdings, Inc. and its consolidated subsidiaries,
       referred to as CBS Personnel, is a provider of temporary staffing
       services in the United States.  CBS Personnel is headquartered in
       Cincinnati, OH, operates 144 branch locations in 18 states and was
       founded in 1970. CBS Personnel is one of the largest commercial
       staffing companies in the nation.

     * Compass AC Holdings, Inc. and its consolidated subsidiary, referred to
       as Advanced Circuits, is a manufacturer of low-volume quick-turn and
       prototype rigid printed circuit boards ("PCBs"). Advanced Circuits is
       based in Aurora, CO and was founded in 1989.

     * Halo Branded Solutions, Inc. referred to as Halo, is a leading
       distributor of customized promotional products and serves more than
       30,000 customers as a one-stop-shop resource for design, sourcing,
       management and fulfillment across all categories of its customers'
       promotional products needs. Halo is based in Sterling, IL and was
       founded in 1952.

     * Silvue Technologies Group, Inc. and its consolidated subsidiaries,
       referred to as Silvue, is a developer and manufacturer of proprietary,
       high-performance coating systems for polycarbonate, glass, acrylic,
       metals and other substrate materials used in the premium eyewear,
       aerospace, automotive and industrial markets.  Silvue is based in
       Anaheim, CA and was founded in 1986.

To find out more about Compass Diversified Trust, please visit http://www.compassdiversifiedtrust.com.

This press release may contain certain forward-looking statements, including statements with regard to the future performance of the Trust. 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 10K filed by CODI with the Securities and Exchange Commission for the year ended December 31, 2006 and the Form 10Qs filed by CODI for the quarters ended March 31, 2006 June 30, 2006 and September 30, 2006 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 Trust
                          Consolidated Balance Sheet
                                (in thousands)

                                                     December 31,
                                                         2006
    Assets
    Current assets:
      Cash and cash equivalents                         $7,006
      Accounts receivable, less allowances
       of $3,327                                        74,899
      Inventories                                        4,756
      Prepaid expenses and other current assets          7,059
      Current assets of discontinued operations         46,636

            Total current assets                       140,356

      Property, plant and equipment, net                10,858
      Goodwill                                         159,151
      Intangible assets, net                           128,890
      Deferred debt issuance costs, less
       accumulated amortization of $114                  5,190
      Other non-current assets                          15,894
      Assets of discontinued operations                 65,258

    Total assets                                      $525,597


    Liabilities and stockholders' equity
    Current liabilities:
      Accounts payable                                 $14,314
      Accrued expenses                                  38,586
      Due to related party                                 469
      Revolving credit facility                         87,604
      Current portion of supplemental put obligation     7,880
      Current liabilities of discontinued operations    14,019

            Total current liabilities                  162,872

    Supplemental put obligation                         14,576
    Deferred income taxes                               41,337
    Other non-current liabilities                       17,336
    Non-current liabilities of discontinued operations   6,634

    Total liabilities                                  242,755

    Minority interests                                  27,131

    Stockholders' equity
    Trust shares, no par value, 500,000 authorized;
     20,450 shares issued and outstanding              274,961
    Accumulated earnings (deficit)                     (19,250)
            Total stockholders' equity                 255,711
    Total liabilities and stockholders' equity        $525,597



                          Compass Diversified Trust
                     Consolidated Statement of Operation
                    (in thousands, except per share data)

                                                    Year Ended
                                                 December 31, 2006

    Net sales                                         $410,873
    Cost of sales                                      311,641
            Gross profit                                99,232
    Operating expenses:
      Staffing expense                                  34,345
      Selling, general and administrative expenses      36,732
      Supplemental put expense                          22,456
      Fees to Manager                                    4,376
      Research and development expense                   1,806
      Amortization expense                               6,774
            Operating loss                              (7,257)

    Other income (expense):
      Interest income                                      807
      Interest expense                                  (6,130)
      Amortization of debt issuance costs                 (779)
      Loss on debt extinguishment                       (8,275)
      Other income, net                                    541

            Loss from continuing operations before
             income taxes and minority interests       (21,093)
    Provision for income taxes                           5,298
    Minority interest                                    1,245

            Loss from continuing operations            (27,636)
    Income from discontinued operations, net of
     income taxes                                        8,387

            Net loss                                  $(19,249)

    Basic and fully diluted loss per share              $(1.52)

    Weighted average number of shares of Trust
     stock outstanding - basic and fully diluted        12,686

    Cash dividends paid per share                      $0.3952



                          Compass Diversified Trust
                     Consolidated Statement of Cash Flows
                                (in thousands)

                                                     Year Ended
                                                  December 31, 2006
    Cash flows from operating activities:
    Net loss                                          $(19,249)
    Adjustments to reconcile net loss to  net
     cash provided by operating activities:
       Depreciation of property and equipment            2,494
       Amortization expense                              7,796
       Supplemental put expense                         22,456
       Loss on debt extinguishment                       8,275
       Minority interests                                2,950
       Loan forgiveness accrual                          2,760
       Deferred taxes                                   (2,281)
       In-process research and development expense       1,120
       Other                                              (450)

    Changes in operating assets and liabilities,
     net of acquisition:
       Increase in accounts receivable                  (7,867)
       Increase in inventories                          (6,314)
       Increase in prepaid expenses and other
        current assets                                     (72)
       Increase in accounts payable and accrued
        expenses                                         8,555
       Decrease in due to related party                 (1,308)
       Increase in other liabilities                     2,251
       Other                                              (553)
             Net cash provided by operating activities  20,563

    Cash flows from investing activities:
          Acquisition of businesses, net of cash
           acquired                                   (356,464)
          Purchases of property and equipment           (5,822)
              Net cash used in investing activities   (362,286)

    Cash flows from financing activities:
          Proceeds from the issuance of debt            85,004
          Proceeds from the issuance of Trust
           shares, net                                 284,969
          Debt issuance costs                          (11,560)
          Distributions paid                            (7,955)
          Other                                            615
              Net cash provided by financing
               activities                              351,073

    Net increase in cash and cash equivalents            9,350
    Foreign currency adjustment                            260
    Cash and cash equivalents - beginning of period        100
    Cash and cash equivalents - end of period           $9,710

    Cash reflected in discontinued operations at
     December 31, 2006                                  $2,704



                          Compass Diversified Trust
     Consolidated Table of Cash Flows Available for Distribution ("CAD")
                                (in thousands)

                                                     Year Ended
                                                 December 31, 2006

    Net loss                                          $(19,249)
       Adjustment to reconcile net loss to
        cash provided by operating activities:
          Depreciation and amortization                 10,290
          Supplemental put expense                      22,456
          Silvue's in process R&D expensed at
           acquisition date                              1,120
          Advanced Circuit's loan forgiveness
           accrual                                       2,760
          Minority interest                              2,950
          Deferred taxes                                (2,281)
          Loss on Ableco debt retirement                 8,275
          Other                                           (450)
          Changes in operating assets and liabilities   (5,308)
    Net cash provided by operating activities           20,563
    Plus:
          Unused fee on credit facilities(1)             1,291
          Changes in operating assets and liabilities    5,308
    Less:
          Maintenance capital expenditures(2)
               CBS Personnel                               209
               Crosman(3)                                1,926
               Advanced Circuits                           392
               Silvue                                      304
               Anodyne                                     636

    Estimated cash flow available for distribution     $23,695


    Distribution paid in July 2006                     $(2,587)
    Distribution paid in September 2006                 (5,368)
    Distribution declared in January 2007               (6,135)

    Total                                             $(14,090)


     (1) Represents the commitment fee on the unused portion of our
         third-party loans.
     (2) Represents maintenance capital expenditures that were funded from
         operating cash flow and excludes approximately $2.3 million of growth
         capital expenditures for the period ended December 31, 2006.
     (3) Crosman was sold on January 5, 2007.


    Compass Diversified Trust        Investor Relations Contact:
    James J. Bottiglieri             KCSA Worldwide
    Chief Financial Officer          Jeffrey Goldberger / Garth Russell
    203.221.1703                     212.896.1249 / 212.896.1250
    jbottiglieri@compasstrust.com    jgoldberger@kcsa.com / grussell@kcsa.com

Source: Compass Diversified Trust

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